File No. 2-96520
File No. 811-4261
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 17
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 17
UNITED GOLD & GOVERNMENT FUND, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under
the Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ended December 31, 1995 will be filed on or about
February 21, 1996.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
===================================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund;
About the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... An Overview of the Fund; About the Investment
Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... About the Management and Expenses of the Fund
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Fund
5A........................ **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in 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 February 19, 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 Gold & Government Fund, Inc.
Class A Shares
This Fund seeks a high total return through investments in precious metals,
minerals-related securities or U.S. Government Securities.
This Prospectus describes one class of shares of the Fund -- Class A
Shares.
Prospectus
February 19, 1996
UNITED GOLD & GOVERNMENT 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.........................4
EXPENSES........................................6
FINANCIAL HIGHLIGHTS............................8
PERFORMANCE.....................................9
Explanation of Terms ..........................9
ABOUT WADDELL & REED...........................11
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....12
Investment Goals and Principles ..............12
Risk Considerations ........................15
Securities and Investment Practices ..........18
ABOUT YOUR ACCOUNT.............................40
Ways to Set Up Your Account ..................40
Buying Shares ................................43
Minimum Investments ..........................46
Adding to Your Account .......................47
Selling Shares ...............................47
Shareholder Services .........................51
Personal Service ...........................51
Reports ....................................51
Exchanges ..................................52
Automatic Transactions .....................52
Dividends, Distributions and Taxes ...........53
Distributions ..............................53
Taxes ......................................54
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..58
WRIMCO and Its Affiliates ....................59
Breakdown of Expenses ........................61
Management Fee .............................61
Other Expenses .............................63
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Gold &
Government Fund, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Gold & Government Fund, Inc. (the "Fund")
seeks a high total return through investments in precious metals, minerals-
related securities or U.S. Government Securities. The Fund's portfolio
will generally include minerals-related securities and gold, silver and
platinum during periods of actual or expected inflation or when the
environment for investment in precious metals appears to be favorable, and
U.S. Government Securities during periods of actual or expected
disinflation or low inflation. See "About the Investment Principles of the
Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class A share of
the Fund is the net asset value of a Class A share plus a sales charge.
See "About Your Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption and reinvestment
procedures.
Who May Want to Invest: The Fund is designed for investors who are willing
to accept significant risks with the opportunity to participate in
potentially high returns. You should consider whether the Fund fits with
your particular investment objectives.
Risk Considerations: The Fund is subject to significant risks associated
with gold and other minerals-related securities, foreign securities and
precious metals. The value of the Fund's investments and the income
generated will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news.
Performance will also depend on WRIMCO's skill in selecting investments.
See "About the Investment Principles of the Fund" for information about the
risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases 5.75%
(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.__%
12b-1 fees 0.__%
Other expenses 0.__%
Total Fund operating expenses1 %
Example: You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return2 and (2) redemption at the end of each time
period:
1 year $
3 years $
5 years $
10 years $
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."
1Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
2Use 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, which will be
included in the SAI.
For a Class A share outstanding throughout each period.3
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $ $9.97 $5.70 $6.63 $6.68 $8.66 $7.47 $7.95 $6.83 $5.07
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ... .05 .04 .06 .15 .11 .16 .17 .14 .17
Net realized and
unrealized gain
(loss) on
investments ........... (1.78) 4.27 (0.93) (0.05) (1.97) 1.20 (0.48) 1.93 1.89
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .............. (1.73) 4.31 (0.87) .10 (1.86) 1.36 (0.31) 2.07 2.06
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income ..... (0.05) (0.04) (0.06) (0.15) (0.12) (0.17) (0.17) (0.13) (0.22)
Distributions from
capital gains ......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.82) (0.08)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ....... (0.05) (0.04) (0.06) (0.15) (0.12) (0.17) (0.17) (0.95) (0.30)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........... $ $8.19 $9.97 $5.70 $6.63 $6.68 $8.66 $7.47 $7.95 $6.83
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* ............. -17.36% 75.82% -13.18% 1.47% -21.59% 18.42% -3.92% 30.36% 41.48%
Net assets, end of period
(000 omitted) ........... $ $37,422 $46,908 $27,136 $40,587 $54,371 $83,154 $99,460 $119,894 $17,695
Ratio of expenses to average
net assets .............. 1.59% 1.69% 1.88% 1.57% 1.56% 1.42% 1.42% 1.20% 1.48%
Ratio of net investment income
to average net assets ... 0.57% 0.48% 0.90% 2.11% 1.43% 1.91% 2.14% 1.81% 3.46%
Portfolio turnover rate** 64.89% 84.00% 61.50% 112.80% 82.42% 89.92% 100.19% 107.00% 159.66%
*Total return calculated without taking into account the sales load deducted on an initial purchase.
**This rate is, in general, calculated by dividing the average value of the Fund's portfolio securities during the period into the
lesser of its purchases or sales of securities in the period, excluding short-term securities and bullion.
3On February 19, 1996, the Fund began offering Class Y shares to the
public. Fund shares outstanding prior to that date were designated Class A
shares.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing 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.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based, and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to seek a high total return to investors. The Fund
seeks to achieve this goal by investing in (i) minerals-related securities
and gold, silver, and platinum during periods of actual or expected
inflation, (ii) securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities") during
periods of actual or expected disinflation or low inflation, and (iii)
gold, silver, and platinum during periods when the environment for
investment in precious metals appears to be favorable. Minerals-related
securities are securities that offer an investment participation in the
mining, processing, production, exploration, refining or sales of gold,
platinum, silver or hydrocarbons. There is no assurance that the Fund will
achieve its goal.
During past inflationary periods, minerals-related securities and precious
metals, such as gold, silver and platinum, generally have increased in
value, while the value of debt securities has tended to decrease due to
rising interest rates. Conversely, during periods of disinflation or low
inflation, the value of debt securities has generally increased, while the
value of minerals-related securities and precious metals has decreased.
Low inflation is considered to be generally in the 3% to 6% range, as
measured by the Consumer Price Index. Also, during periods of declining
stock prices, the prices of gold, silver and platinum may increase or
remain stable, while the value of minerals-related securities may be
subject to a general decline experienced by the stock market as a whole.
Based on these historical trends, WRIMCO will attempt to anticipate
inflationary and disinflationary periods and manage the Fund's investments
in a manner designed to achieve the Fund's goal.
As a matter of fundamental policy, the Fund will not invest in other than
(i) those minerals-related securities that are related to the mining,
processing, production, exploration, refining or sales of gold, (ii) U.S.
Government Securities, and/or (iii) gold, silver and platinum if thereafter
less than 65% of its total assets would be invested in these investments.
The Fund may invest in securities other than minerals-related securities,
U.S. Government Securities and gold, silver or platinum, subject to this
65% test and to the other restrictions set forth in this Prospectus and the
SAI.
It is a fundamental policy of the Fund to concentrate its investments
(i.e., invest more than 25% of its assets) in an industry related to gold
and other minerals during periods of actual or anticipated inflation and up
to 100% of its assets may be so invested. During periods of actual or
expected disinflation or low inflation, up to 100% of the Fund's assets may
be invested in U.S. Government Securities of varying maturities and not
more than 25% of the Fund's assets will be invested in gold and other
minerals-related securities. When the Fund is invested in minerals-related
securities, it is anticipated that a substantial portion, and up to 100%,
of its assets will be invested in foreign securities. See "Foreign
Securities." The securities that the Fund may own include debt securities,
preferred stock, common stock and convertible securities.
WRIMCO believes that this strategy will allow the Fund to achieve a higher
total return than could be achieved if it remained invested in minerals-
related securities and precious metals during periods of low inflation or
disinflation because the income and value of minerals-related securities
and precious metals might decline during periods of disinflation or low
inflation. During such periods, WRIMCO expects that higher income can be
achieved and that capital will be better preserved by investing in U.S.
Government Securities. It is expected that, during periods of disinflation
and low inflation, a greater portion of the total return of the Fund will
be attributable to income achieved through investment in U.S. Government
Securities. It is expected that, during inflationary periods, a greater
portion of the total return of the Fund will be attributable to
appreciation from investment in minerals-related securities and precious
metals.
WRIMCO will evaluate numerous economic and monetary factors in making a
determination as to whether the economy is in or is likely to enter into an
inflationary or disinflationary period. Among the factors WRIMCO will
evaluate are changes in governmental fiscal and monetary policy, rates of
changes in the Consumer Price Index, and actual and anticipated changes and
rate of change in the value of the U.S. dollar in relation to other key
foreign currencies, short- and long-term interest rates, and the money
supply. For example, when WRIMCO believes that the economy is in an
inflationary cycle or an inflationary cycle is expected because of rising
interest rates, a decline in the value of the U.S. dollar, and a higher
rate of change in the Consumer Price Index, the Fund generally will
concentrate in minerals-related securities. On the other hand, when
interest rates are declining, the value of the U.S. dollar is increasing,
and the rate of change in the Consumer Price Index is declining, the Fund
generally will invest in U.S. Government Securities. However, WRIMCO will
take into account factors other than those given in these examples and
WRIMCO's subjective judgment of all factors it deems relevant precludes the
application of any formulas or mechanical determinations in assessing the
state of the economy. WRIMCO's evaluation takes into consideration
political instability in certain parts of the world as well as domestic and
international economic factors.
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
or other asset because of market factors. Because of market risks, 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.
Because the Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of the Fund's investments
and the income it generates will vary from day to day, generally reflecting
changes in interest rates, market conditions, and other company and
economic news.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward currency
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.
Investments in minerals-related securities and precious metals are
considered speculative and involve substantial risks and special
considerations, including the following:
Risk of Price Fluctuations. Metals and minerals prices are affected by
various factors such as economic conditions, political events, monetary
policies and other factors. As a result, prices of minerals-related
securities and of gold, silver and platinum may fluctuate sharply.
Concentration of Source of Gold Supply and Control of Gold Sales. The six
largest producers of gold are the Republic of South Africa, the United
States, Australia, Commonwealth of Independent States (the "CIS," formerly
the Union of Soviet Socialist Republics), Canada and China. Economic,
social and political conditions and objectives prevailing in these
countries may have a direct effect on the production and marketing of
newly-produced gold and sales of central bank gold holdings. In South
Africa, the activities of companies engaged in gold mining are subject to
the policies adopted by the Ministry of Mines. The Reserve Bank of South
Africa, as the sole authorized sales agent for South African gold, has an
influence on the price and timing of sales of South African gold. As South
Africa is the largest producer of gold, social upheaval and related
economic difficulties in South Africa may, from time to time, influence the
price of gold and the share values of mining companies involved in South
Africa and elsewhere. Investors should understand the special
considerations and risks related to an investment emphasis in securities of
South African issuers and its potential effects on the Fund's per share
value. The Fund may invest up to 100% of its assets in securities of South
African issuers.
Unpredictable International Monetary Policies, Economic and Political
Conditions. There is the possibility that, under unusual international
monetary or political conditions, the Fund's assets might be less liquid or
that the change in value of its assets might be more volatile than would be
the case with other investments. In particular, the price of gold is
affected by direct and indirect use of it to settle net deficits and
surpluses between nations. Because the prices of metals and minerals may
be affected by unpredictable international monetary policies and economic
conditions, there may be greater likelihood of a more dramatic impact upon
the market price of the Fund's investments than of other investments.
Foreign Securities. A major portion of the Fund's assets will usually be
invested in foreign securities during periods of actual or anticipated
inflation. See "Foreign Securities" below.
Failure to Anticipate Changes in Economic Cycles. In addition to the risks
discussed above, the Fund's investment success will be dependent to a high
degree on WRIMCO's ability to anticipate the onset and termination of
inflationary and disinflationary cycles. A failure to anticipate a
disinflationary cycle could result in the Fund's assets being
disproportionately invested in minerals-related securities. Conversely, a
failure to predict an inflationary cycle could result in the Fund's assets
being disproportionately invested in U.S. Government Securities. The
Fund's investment success will be dependent to a high degree on the
validity of the premise that the values of minerals-related securities will
move in a different direction than the values of U.S. Government Securities
during periods of inflation or disinflation. If the values of both types
of securities move down during the same period of time, the value of the
shareholder's investment will decline rather than stabilize or increase, as
anticipated, regardless of whether the Fund is invested in minerals-related
securities or U.S. Government Securities.
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 noted
above; others are 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 is a fundamental policy.
Unless otherwise indicated, the types of securities and 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.
Precious Metals. The ownership of precious metals may allow the Fund to
take advantage of those periods of time when the outlook for the price of
gold, silver, and platinum is favorable while the outlook for the share
prices of minerals-related securities may be unfavorable. For example,
during periods of declining stock prices, the price of gold may increase or
remain stable, while the value of gold-related securities may be subject to
the same general decline experienced by the stock market as a whole. Under
these or similar circumstances, the ability of the Fund to purchase and
hold gold, silver or platinum will allow it to benefit from a potential
increase in the price of precious metals or stability in the price of such
metals at a time when the value of minerals-related securities may be
declining.
The Fund's ability to purchase platinum may allow the Fund to invest in
platinum without the risks associated with owning shares of South African
and CIS companies engaged in the production of platinum. While the Fund is
authorized to invest in South African and CIS issuers, investments in South
Africa and in the CIS are subject to the risks associated with the
unsettled political and social conditions prevailing in that country and
neighboring countries.
The Fund anticipates that gold, silver and platinum will be purchased in
the form of bullion or coins or in the form of vault or other negotiable
receipts representing ownership of these metals. The Fund may incur
expenses for the shipping, storage and insurance of precious metals it
purchases.
Precious metals prices are affected by various factors, such as economic
conditions, political events, and monetary policies. As a result, the
price of gold, silver, or platinum may fluctuate widely. The sole source
of return to the Fund from such investments will be gains realized on
sales; a negative return will be realized if the metal is sold at a loss.
Investments in precious metals do not provide a yield.
Ownership of gold, silver and platinum may be prohibited by any one or more
of the states in which shares of the Fund are sold. In the event that any
state prohibits such investment, the Fund may elect not to make such
investments. In addition, the Fund's direct investment in these precious
metals may be limited by tax considerations. See "Taxes" in the SAI.
Policies and Restrictions: As a fundamental policy, the Fund may not
invest more than 25% of its total assets in gold, silver and platinum.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote
on measures affecting the issuer's organization and operations. Although
common stocks and other equity securities have a history of long-term
growth in value, their prices tend to fluctuate in the short term,
particularly those of smaller companies. The equity securities in which
the Fund invests may include preferred stock that converts to common stock
either automatically or after a specified period of time or at the option
of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The debt
securities in which the Fund invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
dividends, the Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities in the lowest rating category (such as those rated D
by Standard & Poor's Ratings Services ("S&P") and C by Moody's Investors
Service, Inc. ("MIS")). In addition, the Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security
to be equivalent to securities having that rating. Debt securities rated
at least BBB by S&P or Baa by MIS are considered to be investment grade
securities. Securities rated BBB or Baa may have speculative
characteristics. Debt securities rated D by S&P or C by MIS are in payment
default and are regarded as having extremely poor prospects of ever
attaining any real investment standing. Credit ratings for individual
securities may change from time to time, and the Fund may retain a
portfolio security whose rating has been changed. See the SAI for
additional information about non-investment grade debt securities.
Policies and Restrictions: In the case of U.S. Government Securities
issued by an agency or instrumentality that are not backed by the full
faith and credit of the United States, the Fund will invest in such
securities only when WRIMCO is satisfied that the credit risk with respect
to such agency or instrumentality is acceptable.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally have higher yields than those of common stocks of the same or
similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer
and other factors also may have an effect on the convertible security's
investment value.
Policies and Restrictions: The Fund does not intend to invest more than 5%
of its assets in non-investment grade debt securities. The Fund has no
policy limiting the maturity of the debt instruments in which it invests.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that WRIMCO will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth
above that expected to occur in the United States, the United Kingdom,
France, Germany, Italy, Japan and Canada. Developing countries may have
relatively unstable governments, economies based on only a few industries
and securities markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
When purchasing foreign securities, the Fund may purchase American
Depository Receipts, which are certificates issued by U.S. depositories
representing the right to receive securities of a foreign issuer deposited
with that or another depository, and may also purchase securities of a
foreign issuer directly in the foreign market.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund currently intends to limit its investment in
obligations of any single foreign government to less than 25% of its total
assets.
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, forward currency contracts and certain other strategies
described herein. The strategies described below may be used in an attempt
to manage certain risks of the Fund's investments that can affect
fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The 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 (sell) put and call options only on U.S. Government Securities
(except that the Fund may write call options on securities whether or not
they are U.S. Government Securities) and the options on futures contracts
described below, subject to certain restrictions that are set forth in the
SAI.
As a fundamental policy, the Fund may write calls on securities only if the
calls are covered calls (i.e., the Fund must own the related investments or
other investments acceptable for escrow arrangements).
As a fundamental policy, the Fund may only purchase or write options if
they are listed on a domestic securities or commodities exchange or quoted
on Nasdaq, except the Fund may purchase optional delivery standby
commitments.
The Fund will only write puts on securities when it would be willing to
purchase the underlying security at the exercise price.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to U.S. Government Securities ("U.S.
Government Securities Futures") and options thereon. As a fundamental
policy, the Fund may buy and sell only listed options on U.S. Government
Securities Futures.
Forward Contracts and Currencies. The Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified
future date either with respect to specific transactions or with respect to
portfolio positions in order to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
For example, when WRIMCO anticipates purchasing or selling a security, the
Fund may enter into a forward contract in order to set the exchange rate at
which the transaction will be made. The Fund also may enter into a forward
contract to sell an amount of a foreign currency approximating the value of
some or all of the Fund's securities positions denominated in such
currency. The Fund may also use forward contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value
of securities denominated in a different currency if WRIMCO anticipates
that there will be a correlation between the two currencies.
Successful use of forward currency contracts will depend on WRIMCO's skill
in analyzing and predicting currency values. Forward contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates, and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged.
Policies and Restrictions: As a fundamental policy, the Fund may not have
more than 15% of the value of its assets committed to the consummation of
forward currency contracts. As a fundamental policy, the Fund will not
enter into forward currency contracts or maintain a net exposure to forward
currency contracts where the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of
its portfolio securities or other assets denominated in that currency.
As a fundamental policy, the Fund may hold foreign currency only in
connection with forward currency contracts, only up to four business days,
as well as in connection with the purchase or sale of foreign securities,
but not otherwise.
Generally, the Fund will not enter into a forward currency contract with a
term of greater than one year.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent
on the performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes in
the U.S. and abroad. At the same time, indexed securities are subject to
the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may be more volatile than the underlying
instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
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.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, and forward 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 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
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate, foreign currency exchange rate or stock market trends by
WRIMCO may still not result in a successful transaction. WRIMCO may be
incorrect in its expectations as to the extent of various interest or
foreign currency exchange rate movements or stock market movements or the
time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
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 only 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.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be
costly to the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase restricted securities, except that the Fund may invest not more
than 5% of its total assets in restricted foreign securities.
The Fund may not purchase a security if, as a result, more than 10% of its
net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry. As
described above, however, the Fund intends to concentrate in gold and other
minerals-related securities.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting
securities or any class of securities of an issuer, or if more than 5% of
the Fund's total assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in
securities of companies in any one industry; however, the Fund intends to
concentrate in gold and other minerals-related securities.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may not
borrow for investment purposes. As a fundamental policy, the Fund may
borrow money only from banks, as a temporary measure or for extraordinary
or emergency purposes but only up to 5% of its total assets. The Fund does
not intend to borrow for temporary measures; however, it may borrow to
cover redemptions or settlements of securities transactions.
Lending. Securities loans may be made on a short-term or 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 may 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.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund
would bear its pro rata share of that investment company's expenses, which
could result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: The Fund may invest up to 2% of its assets in
warrants. Warrants acquired in units or attached to other securities are
not considered for purposes of computing this limitation.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and only if not more than 10% of the Fund's
total assets would be invested in these shares, or as part of a merger or
consolidation. The Fund does not intend to invest more than 5% of its
assets in such securities.
The Fund will not purchase securities of unseasoned issuers, including
predecessor companies, which have been in operation for less than three
years, if the value of its investment in such securities would exceed 5% of
its total assets.
<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.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,0001.50 1.52
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding, with respect to that class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market
quotations are not available, at their fair value in a manner determined in
good faith by or at the direction of the Board of Directors. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of Fund shares may be significantly
affected on days when the Fund does not price its shares and when you have
no access to the Fund.
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 any of the funds in the United Group, to the extent
otherwise permitted, except United Municipal Bond Fund, Inc., United Cash
Management, Inc., United Government Securities Fund, Inc. and United
Municipal High Income Fund, Inc., with the net asset value of Class A
shares already held ("rights of accumulation") and by grouping all
purchases of Class A shares made during a thirteen-month period ("Statement
of Intention"). Shares of a corresponding class of another fund purchased
through a contractual plan may not be included unless the plan has been
completed. Purchases by certain related persons may be grouped.
Additional information and applicable forms are available from Waddell &
Reed account representatives.
Class A shares may be purchased at 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, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration;
the Fund's name,
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the
written request.
If you hold a certificate, it must be properly endorsed and sent to the
Fund.
If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of
record; or
the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will
give you notice of its intention to redeem your shares and a 60-day
opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of
your redemption. You may do this only once as to Class A shares of the
Fund.
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 only into funds that are legally
registered for sale in your state of residence. Note that exchanges out of
the Fund may have tax consequences for you. Before exchanging into a fund,
read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular investment plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit
and will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses and
other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account
representative for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service To move money from United Cash Management, Inc. to the
Fund whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio
assets less expenses, quarterly in March, June, September and December.
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 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 gain and net gains from certain
foreign currency transactions) and net capital gain (the excess of net
long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are certain 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 gains, when designated as such, are taxable to you as long-term
capital gains, whether received in cash or paid in additional Fund shares
and regardless of the length of time you have owned your shares. 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. Under
certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund
will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant
to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
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 Gold & Government 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 February 28, 1985.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to February 19, 1996, the Fund
offered only one class of shares to the public. Shares outstanding on that
date were designated as Class A shares, which are offered by this
Prospectus. In addition, the Fund offers Class Y shares through a separate
prospectus. Class Y shares are designed for institutional investors.
Class Y shares are not subject to a sales charge on purchases and are not
subject to redemption fees. Class Y shares are not subject to a Rule 12b-1
fee. Additional information about Class Y shares may be obtained by
calling 913-236-2000 or by writing to Waddell & Reed, Inc. at the address
on the inside back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate
vote of any class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular classes, in which
case only the shareholders of the affected classes are entitled to vote,
each as a separate class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises
the Fund's investments. Waddell & Reed, Inc. and its predecessors served
as investment manager to each of the registered investment companies in the
United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992,
when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since
its inception in September 1992, and United Asset Strategy Fund, Inc. since
it commenced operations in March 1995.
Michael D. Avery is primarily responsible for the day-to-day management of
the Fund. Mr. Avery has held his Fund responsibilities since February 1,
1994. He is Vice President of WRIMCO, Vice President of Waddell & Reed
Asset Management Company, an affiliate of WRIMCO, Vice President of the
Fund, and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Avery has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since February 1, 1994, has served as the director of
research of Waddell & Reed, Inc. and its successor, WRIMCO, since August
1987, and has been an employee of Waddell & Reed, Inc. and its successor,
WRIMCO, since June 1981. Other members of WRIMCO's investment management
department provide input on market outlook, economic conditions, investment
research and other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc., and serves as the distributor for TMK/United Funds,
Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .30 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $___ billion as of December 31, 1995. Management fees for
the fiscal year ended December 31, 1995 were ____% 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 December 31, 1995 for the
Fund's Class A shares were ____% of the average net assets of the Fund's
Class A shares.
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 such securities during the year,
excluding certain short-term securities and bullion. Since the turnover
rate of the Fund will be affected by a number of factors, the Fund is
unable to predict what rate the Fund will have in any particular period or
periods, although such rate is not expected to exceed 100%. However, the
rate could be substantially higher or lower in any particular period. The
factors that may affect the rate include moving from a position emphasizing
gold and other minerals-related securities to a position emphasizing U.S.
Government Securities or vice versa and the possible necessary sales of
securities to meet redemptions. The Fund may engage in short-term trading
and have a high portfolio turnover.
<PAGE>
United Gold & Government 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 Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Gold & Government Fund, Inc.
Class A Shares
PROSPECTUS
February 19, 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.
NUP2013(2-96)
printed on recycled paper
<PAGE>
SUBJECT TO COMPLETION -- Information contained herein is subject to
completion or amendment. A registration statement relating to these
securities has been filed with the Securities and Exchange Commission but
has not yet become effective. These securities may not be sold nor may
offers to buy be accepted before the time the registration statement
becomes effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful before registration or qualification under the securities laws of
any such state.
Please read this Prospectus before investing, and keep it on file for
future reference. It sets forth concisely the information about the Fund
that you ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information
("SAI") dated February 19, 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 Gold & Government Fund, Inc.
Class Y Shares
This Fund seeks a high total return through investment s in precious
metals, minerals-related securities or U.S. Government securities.
This Prospectus describes one class of shares of the Fund -- Class Y
Shares.
Prospectus
February 19, 1996
UNITED GOLD & GOVERNMENT 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.........................5
EXPENSES........................................7
FINANCIAL HIGHLIGHTS............................9
PERFORMANCE....................................10
Explanation of Terms .........................10
ABOUT WADDELL & REED...........................12
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....13
Investment Goals and Principles ..............13
Risk Considerations ........................16
Securities and Investment Practices ..........19
ABOUT YOUR ACCOUNT.............................41
Buying Shares ................................41
Minimum Investments ..........................44
Adding to Your Account .......................44
Selling Shares ...............................44
Telephone Transactions .......................48
Shareholder Services .........................49
Personal Service ...........................49
Reports ....................................49
Exchanges ..................................49
Dividends, Distributions and Taxes ...........50
Distributions ..............................50
Taxes ......................................51
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..54
WRIMCO and Its Affiliates ....................55
Breakdown of Expenses ........................57
Management Fee .............................58
Other Expenses .............................59
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Gold &
Government Fund, Inc., an open-end, diversified management investment
company.
Goals and Strategies: United Gold & Government Fund, Inc. (the "Fund")
seeks a high total return through investments in precious metals, minerals-
related securities or U.S. Government Securities. The Fund's portfolio
will generally include minerals-related securities and gold, silver and
platinum during periods of actual or expected inflation or when the
environment for investment in precious metals appears to be favorable, and
U.S. Government Securities during periods of actual or expected
disinflation or low inflation. See "About the Investment Principles of the
Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO")
provides investment advice to the Fund and manages the Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO,
Waddell & Reed, Inc. and its predecessors have provided investment
management services to registered investment companies since 1940. See
"About the Management and Expenses of the Fund" for further information
about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and
distributor of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed,
Inc. and its account representatives. The price to buy a Class Y share of
the Fund is the net asset value of a Class Y share. There is no sales
charge incurred upon purchase of Class Y shares of the Fund. See "About
Your Account" for information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell
your shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption procedures.
Who May Want to Invest: This Fund is designed for investors who are
willing to accept significant risks with the opportunity to participate in
potentially high returns. You should consider whether the Fund fits with
your particular investment objectives.
Risk Considerations
The Fund is subject to significant risks associated with gold and other
minerals-related securities, foreign securities and precious metals. The
value of the Fund's investments and the income generated will vary from day
to day, generally reflecting changes in interest rates, market conditions
and other company and economic news. Performance will also depend on
WRIMCO's skill in selecting investments. See "About the Investment
Principles of the Fund" for information about the risks associated with the
Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell
shares of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).4
Management fees 0.__%
12b-1 fees None
Other expenses 0.__%
Total Fund operating expenses __%
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 $__
3 years $__
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 December 31, 1995, and the
expenses attributable to the Class Y shares that are anticipated for the
current year. Actual expenses may be greater or lesser than those shown.
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
Financial Highlights for Class Y shares are not included because the Fund
did not offer Class Y shares during the fiscal year ended December 31,
1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each
class of Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and
distributions. A cumulative total return reflects actual performance over
a stated period of time. An average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
cumulative total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance;
they are not the same as actual year-by-year results. Non-standardized
total return may be for periods other than those required to be presented
or may otherwise differ from standardized total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a
ranking, the Fund may provide additional information, such as the
particular category to which it relates, the number of funds in the
category, the criteria upon which the ranking is based and the effect of
sales charges, fee waivers and/or expense reimbursements.
All performance information that the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
The Fund's recent performance and holdings will be detailed twice a year in
the Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives
located throughout the United States. Your primary contact in your
dealings with Waddell & Reed will be your local account representative.
However, the Waddell & Reed shareholder services department, which is part
of the Waddell & Reed headquarters operations in Overland Park, Kansas, is
available to assist you and your Waddell & Reed account representative.
You may speak with a customer service representative by calling 913-236-
2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The goal of the Fund is to seek a high total return to investors. The Fund
seeks to achieve this goal by investing in (i) minerals-related securities
and gold, silver, and platinum during periods of actual or expected
inflation, (ii) securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities") during
periods of actual or expected disinflation or low inflation, and (iii)
gold, silver, and platinum during periods when the environment for
investment in precious metals appears to be favorable. Minerals-related
securities are securities that offer an investment participation in the
mining, processing, production, exploration, refining or sales of gold,
platinum, silver or hydrocarbons. There is no assurance that the Fund will
achieve its goal.
During past inflationary periods, minerals-related securities and precious
metals, such as gold, silver and platinum, generally have increased in
value, while the value of debt securities has tended to decrease due to
rising interest rates. Conversely, during periods of disinflation or low
inflation, the value of debt securities has generally increased, while the
value of minerals-related securities and precious metals has decreased.
Low inflation is considered to be generally in the 3% to 6% range, as
measured by the Consumer Price Index. Also, during periods of declining
stock prices, the prices of gold, silver and platinum may increase or
remain stable, while the value of minerals-related securities may be
subject to a general decline experienced by the stock market as a whole.
Based on these historical trends, WRIMCO will attempt to anticipate
inflationary and disinflationary periods and manage the Fund's investments
in a manner designed to achieve the Fund's goal.
As a matter of fundamental policy, the Fund will not invest in other than
(i) those minerals-related securities that are related to the mining,
processing, production, exploration, refining or sales of gold, (ii) U.S.
Government Securities, and/or (iii) gold, silver and platinum if thereafter
less than 65% of its total assets would be invested in these investments.
The Fund may invest in securities other than minerals-related securities,
U.S. Government Securities and gold, silver or platinum, subject to this
65% test and to the other restrictions set forth in this Prospectus and the
SAI.
It is a fundamental policy of the Fund to concentrate its investments
(i.e., invest more than 25% of its assets) in an industry related to gold
and other minerals during periods of actual or anticipated inflation and up
to 100% of its assets may be so invested. During periods of actual or
expected disinflation or low inflation, up to 100% of the Fund's assets may
be invested in U.S. Government Securities of varying maturities and not
more than 25% of the Fund's assets will be invested in gold and other
minerals-related securities. When the Fund is invested in minerals-related
securities, it is anticipated that a substantial portion, and up to 100%,
of its assets will be invested in foreign securities. See "Foreign
Securities." The securities that the Fund may own include debt securities,
preferred stock, common stock and convertible securities.
WRIMCO believes that this strategy will allow the Fund to achieve a higher
total return than could be achieved if it remained invested in minerals-
related securities and precious metals during periods of low inflation or
disinflation because the income and value of minerals-related securities
and precious metals might decline during periods of disinflation or low
inflation. During such periods, WRIMCO expects that higher income can be
achieved and that capital will be better preserved by investing in U.S.
Government Securities. It is expected that, during periods of disinflation
and low inflation, a greater portion of the total return of the Fund will
be attributable to income achieved through investment in U.S. Government
Securities. It is expected that, during inflationary periods, a greater
portion of the total return of the Fund will be attributable to
appreciation from investment in minerals-related securities and precious
metals.
WRIMCO will evaluate numerous economic and monetary factors in making a
determination as to whether the economy is in or is likely to enter into an
inflationary or disinflationary period. Among the factors WRIMCO will
evaluate are changes in governmental fiscal and monetary policy, rates of
changes in the Consumer Price Index, and actual and anticipated changes and
rate of change in the value of the U.S. dollar in relation to other key
foreign currencies, short- and long-term interest rates, and the money
supply. For example, when WRIMCO believes that the economy is in an
inflationary cycle or an inflationary cycle is expected because of rising
interest rates, a decline in the value of the U.S. dollar, and a higher
rate of change in the Consumer Price Index, the Fund generally will
concentrate in minerals-related securities. On the other hand, when
interest rates are declining, the value of the U.S. dollar is increasing,
and the rate of change in the Consumer Price Index is declining, the Fund
generally will invest in U.S. Government Securities. However, WRIMCO will
take into account factors other than those given in these examples and
WRIMCO's subjective judgment of all factors it deems relevant precludes the
application of any formulas or mechanical determinations in assessing the
state of the economy. WRIMCO's evaluation takes into consideration
political instability in certain parts of the world as well as domestic and
international economic factors.
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
or other asset because of market factors. Because of market risks, 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.
Because the Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of the Fund's investments
and the income it generates will vary from day to day, generally reflecting
changes in interest rates, market conditions, and other company and
economic news.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward currency
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.
Investments in minerals-related securities and precious metals are
considered speculative and involve substantial risks and special
considerations, including the following:
Risk of Price Fluctuations. Metals and minerals prices are affected by
various factors such as economic conditions, political events, monetary
policies and other factors. As a result, prices of minerals-related
securities and of gold, silver and platinum may fluctuate sharply.
Concentration of Source of Gold Supply and Control of Gold Sales. The six
largest producers of gold are the Republic of South Africa, the United
States, Australia, Commonwealth of Independent States (the "CIS," formerly
the Union of Soviet Socialist Republics), Canada and China. Economic,
social and political conditions and objectives prevailing in these
countries may have a direct effect on the production and marketing of
newly-produced gold and sales of central bank gold holdings. In South
Africa, the activities of companies engaged in gold mining are subject to
the policies adopted by the Ministry of Mines. The Reserve Bank of South
Africa, as the sole authorized sales agent for South African gold, has an
influence on the price and timing of sales of South African gold. As South
Africa is the largest producer of gold, social upheaval and related
economic difficulties in South Africa may, from time to time, influence the
price of gold and the share values of mining companies involved in South
Africa and elsewhere. Investors should understand the special
considerations and risks related to an investment emphasis in securities of
South African issuers and its potential effects on the Fund's per share
value. The Fund may invest up to 100% of its assets in securities of South
African issuers.
Unpredictable International Monetary Policies, Economic and Political
Conditions. There is the possibility that, under unusual international
monetary or political conditions, the Fund's assets might be less liquid or
that the change in value of its assets might be more volatile than would be
the case with other investments. In particular, the price of gold is
affected by direct and indirect use of it to settle net deficits and
surpluses between nations. Because the prices of metals and minerals may
be affected by unpredictable international monetary policies and economic
conditions, there may be greater likelihood of a more dramatic impact upon
the market price of the Fund's investments than of other investments.
Foreign Securities. A major portion of the Fund's assets will usually be
invested in foreign securities during periods of actual or anticipated
inflation. See "Foreign Securities" below.
Failure to Anticipate Changes in Economic Cycles. In addition to the risks
discussed above, the Fund's investment success will be dependent to a high
degree on WRIMCO's ability to anticipate the onset and termination of
inflationary and disinflationary cycles. A failure to anticipate a
disinflationary cycle could result in the Fund's assets being
disproportionately invested in minerals-related securities. Conversely, a
failure to predict an inflationary cycle could result in the Fund's assets
being disproportionately invested in U.S. Government Securities. The
Fund's investment success will be dependent to a high degree on the
validity of the premise that the values of minerals-related securities will
move in a different direction than the values of U.S. Government Securities
during periods of inflation or disinflation. If the values of both types
of securities move down during the same period of time, the value of the
shareholder's investment will decline rather than stabilize or increase, as
anticipated, regardless of whether the Fund is invested in minerals-related
securities or U.S. Government Securities.
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 noted
above; others are 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 is a fundamental policy.
Unless otherwise indicated, the types of securities and 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.
Precious Metals. The ownership of precious metals may allow the Fund to
take advantage of those periods of time when the outlook for the price of
gold, silver, and platinum is favorable while the outlook for the share
prices of minerals-related securities may be unfavorable. For example,
during periods of declining stock prices, the price of gold may increase or
remain stable, while the value of gold-related securities may be subject to
the same general decline experienced by the stock market as a whole. Under
these or similar circumstances, the ability of the Fund to purchase and
hold gold, silver or platinum will allow it to benefit from a potential
increase in the price of precious metals or stability in the price of such
metals at a time when the value of minerals-related securities may be
declining.
The Fund's ability to purchase platinum may allow the Fund to invest in
platinum without the risks associated with owning shares of South African
and CIS companies engaged in the production of platinum. While the Fund is
authorized to invest in South African and CIS issuers, investments in South
Africa and in the CIS are subject to the risks associated with the
unsettled political and social conditions prevailing in that country and
neighboring countries.
The Fund anticipates that gold, silver and platinum will be purchased in
the form of bullion or coins or in the form of vault or other negotiable
receipts representing ownership of these metals. The Fund may incur
expenses for the shipping, storage and insurance of precious metals it
purchases.
Precious metals prices are affected by various factors, such as economic
conditions, political events, and monetary policies. As a result, the
price of gold, silver, or platinum may fluctuate widely. The sole source
of return to the Fund from such investments will be gains realized on
sales; a negative return will be realized if the metal is sold at a loss.
Investments in precious metals do not provide a yield.
Ownership of gold, silver and platinum may be prohibited by any one or more
of the states in which shares of the Fund are sold. In the event that any
state prohibits such investment, the Fund may elect not to make such
investments. In addition, the Fund's direct investment in these precious
metals may be limited by tax considerations. See "Taxes" in the SAI.
Policies and Restrictions: As a fundamental policy, the Fund may not
invest more than 25% of its total assets in gold, silver and platinum.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote
on measures affecting the issuer's organization and operations. Although
common stocks and other equity securities have a history of long-term
growth in value, their prices tend to fluctuate in the short term,
particularly those of smaller companies. The equity securities in which
the Fund invests may include preferred stock that converts to common stock
either automatically or after a specified period of time or at the option
of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Some debt securities, such as zero coupon bonds, do not pay current
interest, but are purchased at a discount from their face values. The debt
securities in which the Fund invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt
securities rise. The values of floating and adjustable-rate debt
securities are not as sensitive to changes in interest rates as the values
of fixed-rate debt securities. Longer-term bonds are generally more
sensitive to interest rate changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency
or instrumentality of the U.S. Government. Not all U.S. Government
Securities are backed by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while others are
supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing
the obligation for ultimate repayment.
Zero coupon bonds do not make interest payments; instead, they are sold at
a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
dividends, the Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities in the lowest rating category (such as those rated D
by Standard & Poor's Ratings Services ("S&P") and C by Moody's Investors
Service, Inc. ("MIS")). In addition, the Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security
to be equivalent to securities having that rating. Debt securities rated
at least BBB by S&P or Baa by MIS are considered to be investment grade
securities. Securities rated BBB or Baa may have speculative
characteristics. Debt securities rated D by S&P or C by MIS are in payment
default and are regarded as having extremely poor prospects of ever
attaining any real investment standing. Credit ratings for individual
securities may change from time to time, and the Fund may retain a
portfolio security whose rating has been changed. See the SAI for
additional information about non-investment grade debt securities.
Policies and Restrictions: In the case of U.S. Government Securities
issued by an agency or instrumentality that are not backed by the full
faith and credit of the United States, the Fund will invest in such
securities only when WRIMCO is satisfied that the credit risk with respect
to such agency or instrumentality is acceptable.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally have higher yields than those of common stocks of the same or
similar issuers, but lower yields than comparable nonconvertible
securities, are less subject to fluctuation in value than the underlying
stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying
common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline. The credit standing of the issuer
and other factors also may have an effect on the convertible security's
investment value.
Policies and Restrictions: The Fund does not intend to invest more than 5%
of its assets in non-investment grade debt securities. The Fund has no
policy limiting the maturity of the debt instruments in which it invests.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less
liquidity than U.S. markets, and prices on some foreign markets can be
highly volatile. Many foreign countries lack uniform accounting and
disclosure standards comparable to those applicable to U.S. companies, and
it may be more difficult to obtain reliable information regarding an
issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions and
custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including
those involving the release of assets in advance of payment, may involve
increased risks in the event of a failed trade or the insolvency of a
broker-dealer, and may involve substantial delays. It may also be
difficult to enforce legal rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments
adverse to the interests of U.S. investors, including the possibility of
expropriation or nationalization of assets, confiscatory taxation,
restrictions on U.S. investment or on the ability to repatriate assets or
convert currency into U.S. dollars, or other government intervention.
There may be a greater possibility of default by foreign governments or
foreign government-sponsored enterprises. Investments in foreign countries
also involve a risk of local political, economic, or social instability,
military action or unrest, or adverse diplomatic developments. There is no
assurance that WRIMCO will be able to anticipate these potential events or
counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth
above that expected to occur in the United States, the United Kingdom,
France, Germany, Italy, Japan and Canada. Developing countries may have
relatively unstable governments, economies based on only a few industries
and securities markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
When purchasing foreign securities, the Fund may purchase American
Depository Receipts, which are certificates issued by U.S. depositories
representing the right to receive securities of a foreign issuer deposited
with that or another depository, and may also purchase securities of a
foreign issuer directly in the foreign market.
Policies and Restrictions: The Fund may purchase an unlimited amount of
foreign securities. The Fund currently intends to limit its investment in
obligations of any single foreign government to less than 25% of its total
assets.
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, forward currency contracts and certain other strategies
described herein. The strategies described below may be used in an attempt
to manage certain risks of the Fund's investments that can affect
fluctuation in its net asset value.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not
use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these instruments and strategies and their risk considerations.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the
right to buy, and obligates the writer to sell, the underlying investment
at the agreed upon exercise price during the option period. A put option
gives the purchaser the right to sell, and obligates the writer to buy, the
underlying investment at the agreed upon exercise price during the option
period. Purchasers of options pay an amount, known as a premium, to the
option writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will
exist for exchange-listed options. The 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 (sell) put and call options only on U.S. Government Securities
(except that the Fund may write call options on securities whether or not
they are U.S. Government Securities) and the options on futures contracts
described below, subject to certain restrictions that are set forth in the
SAI.
As a fundamental policy, the Fund may write calls on securities only if the
calls are covered calls (i.e., the Fund must own the related investments or
other investments acceptable for escrow arrangements).
As a fundamental policy, the Fund may only purchase or write options if
they are listed on a domestic securities or commodities exchange or quoted
on Nasdaq, except the Fund may purchase optional delivery standby
commitments.
The Fund will only write puts on securities when it would be willing to
purchase the underlying security at the exercise price.
Futures Contracts and Options on Futures Contracts. When the Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When the Fund sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When the Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract
at a specified exercise price at any time during the term of the option.
If the Fund has written a call, it assumes a short futures position. If it
has written a put, it assumes a long futures position. When the Fund
purchases an option on a futures contract, it acquires a right in return
for the premium it pays to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a
put).
Policies and Restrictions: As a fundamental policy, the Fund may only buy
and sell futures contracts relating to U.S. Government Securities ("U.S.
Government Securities Futures") and options thereon. As a fundamental
policy, the Fund may buy and sell only listed options on U.S. Government
Securities Futures.
Forward Contracts and Currencies. The Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified
future date either with respect to specific transactions or with respect to
portfolio positions in order to minimize the risk to the Fund from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
For example, when WRIMCO anticipates purchasing or selling a security, the
Fund may enter into a forward contract in order to set the exchange rate at
which the transaction will be made. The Fund also may enter into a forward
contract to sell an amount of a foreign currency approximating the value of
some or all of the Fund's securities positions denominated in such
currency. The Fund may also use forward contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value
of securities denominated in a different currency if WRIMCO anticipates
that there will be a correlation between the two currencies.
Successful use of forward currency contracts will depend on WRIMCO's skill
in analyzing and predicting currency values. Forward contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates, and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged.
Policies and Restrictions: As a fundamental policy, the Fund may not have
more than 15% of the value of its assets committed to the consummation of
forward currency contracts. As a fundamental policy, the Fund will not
enter into forward currency contracts or maintain a net exposure to forward
currency contracts where the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of
its portfolio securities or other assets denominated in that currency.
As a fundamental policy, the Fund may hold foreign currency only in
connection with forward currency contracts, only up to four business days,
as well as in connection with the purchase or sale of foreign securities,
but not otherwise.
Generally, the Fund will not enter into a forward currency contract with a
term of greater than one year.
Indexed Securities. The Fund may purchase and sell indexed securities,
which are securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. Indexed securities typically,
but not always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent
on the performance of the security, currency, or other instrument to which
they are indexed, and may also be influenced by interest rate changes in
the U.S. and abroad. At the same time, indexed securities are subject to
the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may be more volatile than the underlying
instruments.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations, and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if the Fund purchases these securities at a premium, a prepayment
rate that is faster than expected will reduce yield to maturity while a
prepayment rate that is slower than expected will have the opposite effect
of increasing yield to maturity. Conversely, if the Fund purchases these
securities at a discount, faster than expected prepayments will increase,
while slower than expected prepayments will reduce, yield to maturity.
Accelerated prepayments on securities purchased by the Fund at a premium
also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of the
Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of the Fund. It is possible that the availability and marketability
(i.e., liquidity) of these securities could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
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.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, and forward 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 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
reference to something that is not intrinsic to the security itself. The
use of derivative techniques for speculative purposes can increase
investment risk. If WRIMCO judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the
volatility of the Fund and may involve a small investment of cash relative
to the magnitude of the risk assumed. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a
position that the Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general
interest rate, foreign currency exchange rate or stock market trends by
WRIMCO may still not result in a successful transaction. WRIMCO may be
incorrect in its expectations as to the extent of various interest or
foreign currency exchange rate movements or stock market movements or the
time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and
transaction costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date.
The market value of a security could change during this period, which could
affect the Fund's yield.
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 only 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.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance
with guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be
costly to the Fund.
Policies and Restrictions: As a fundamental policy, the Fund may not
purchase restricted securities, except that the Fund may invest not more
than 5% of its total assets in restricted foreign securities.
The Fund may not purchase a security if, as a result, more than 10% of its
net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money
invested in any one issuer or, on a broader scale, in any one industry. As
described above, however, the Fund intends to concentrate in gold and other
minerals-related securities.
Policies and Restrictions: As a fundamental policy, the Fund may not buy a
security if, as a result, it would own more than 10% of the voting
securities or any class of securities of an issuer, or if more than 5% of
the Fund's total assets would be invested in securities of that issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in
securities of companies in any one industry; however, the Fund intends to
concentrate in gold and other minerals-related securities.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may not
borrow for investment purposes. As a fundamental policy, the Fund may
borrow money only from banks, as a temporary measure or for extraordinary
or emergency purposes but only up to 5% of its total assets. The Fund does
not intend to borrow for temporary measures; however, it may borrow to
cover redemptions or settlements of securities transactions.
Lending. Securities loans may be made on a short-term or 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 may 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.
Other Instruments may include warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund
would bear its pro rata share of that investment company's expenses, which
could result in duplication of certain fees, including management and
administrative fees.
Policies and Restrictions: The Fund may invest up to 2% of its assets in
warrants. Warrants acquired in units or attached to other securities are
not considered for purposes of computing this limitation.
As a fundamental policy, the Fund may buy shares of other investment
companies that do not redeem their shares only if it does so in a regular
transaction in the open market and only if not more than 10% of the Fund's
total assets would be invested in these shares, or as part of a merger or
consolidation. The Fund does not intend to invest more than 5% of its
assets in such securities.
The Fund will not purchase securities of unseasoned issuers, including
predecessor companies, which have been in operation for less than three
years, if the value of its investment in such securities would exceed 5% of
its total assets.
<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, 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. Bonds are
generally valued according to prices quoted by a dealer in bonds that
offers a pricing service. Short-term debt securities are valued at
amortized cost, which approximates market value. Other assets are valued
at their fair value by or at the direction of the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the net asset values of its
shares as of the later of the close of business of the NYSE, normally 4
p.m. Eastern time, or the close of the regular session of any other
securities or commodities exchange on which an option held by the Fund is
traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of Fund shares may be significantly
affected on days when the Fund does not price its shares and when you have
no access to the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted.
Note the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method
other than by exchange to another fund in the United Group, the payment
may be delayed for up to ten days to ensure that your previous
investment has cleared.
The Fund does not issue certificates representing Class Y shares of the
Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income
to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB
Bank, n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978,
FBO Customer Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter showing your account number, the
account registration and stating the fund whose shares you wish to purchase
to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax
your request to 913-236-5044 and give your instructions to redeem shares
and make payment by wire to your pre-designated bank account or by check to
you at the address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by
Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the
written request.
If you recently purchased the shares by check, the Fund may delay
payment of redemption proceeds. You may arrange for the bank upon which
the purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or
the date the Fund is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the
NYSE is restricted, or as permitted by the Securities and Exchange
Commission.
Payment is normally made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Fund may require a signature guarantee in
certain situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of
record; or
the check is being made payable to someone other than the owner of
record.
The Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Fund's transfer agent. A notary public cannot provide a signature
guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will
give you notice of its intention to redeem your shares and a 60-day
opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The
Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If the Fund fails to do so, the
Fund may be liable for losses due to unauthorized or fraudulent
instructions. Current procedures relating to instructions communicated by
telephone include tape recording instructions, requiring personal
identification and providing written confirmations of transactions effected
pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff
is available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account
with the Fund. Call 913-236-2000 if you need copies of annual or
semiannual reports or historical account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally
registered for sale in your state of residence. Note that exchanges out of
the Fund may have tax consequences for you. Before exchanging into a fund,
read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio
assets less expenses, quarterly in March, June, September and December.
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 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 gain
and net gains from certain foreign currency transactions) and net capital
gain (the excess of net long-term capital gain over net short-term capital
loss) that are distributed to its shareholders.
There are certain 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. Under
certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund
will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant
to the dividends-received deduction are subject indirectly to the
alternative minimum tax.
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 Gold & Government 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 February 28, 1985.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of
directors are not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A
shares, which are offered by Waddell & Reed, Inc. through a separate
prospectus. Prior to February 19, 1996, the Fund offered only one class of
shares to the public. Shares outstanding on that date were designated as
Class A shares. Class A shares are subject to a sales charge on purchases
but are not subject to redemption fees. Class A shares are subject to a
Rule 12b-1 fee at an annual rate of up to 0.25% of the Fund's average net
assets attributable to Class A shares. Additional information about Class
A shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of this Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which
require shareholder approval will be presented to shareholders at a meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less
than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Fund are met. There will normally
be no meeting of the shareholders for the purpose of electing directors
until such time as less than a majority of directors holding office have
been elected by shareholders, at which time the directors then in office
will call a shareholders' meeting for the election of directors. To the
extent that Section 16(c) of the Investment Company Act of 1940, as amended
(the "1940 Act"), applies to the Fund, the directors are required to call a
meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the
shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate
vote of any class is required by the 1940 Act, and except as to any matter
which affects the interests of one or more particular classes, in which
case only the shareholders of the affected classes are entitled to vote,
each as a separate class. Shares are fully paid and nonassessable when
purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises
the Fund's investments. Waddell & Reed, Inc. and its predecessors served
as investment manager to each of the registered investment companies in the
United Group of Mutual Funds, except United Asset Strategy Fund, Inc.,
since 1940 or the inception of the company, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992,
when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since
its inception in September 1992, and United Asset Strategy Fund, Inc. since
it commenced operations in March 1995.
Michael D. Avery is primarily responsible for the day-to-day management of
the Fund. Mr. Avery has held his Fund responsibilities since February 1,
1994. He is Vice President of WRIMCO, Vice President of Waddell & Reed
Asset Management Company, an affiliate of WRIMCO, Vice President of the
Fund, and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Avery has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since February 1, 1994, has served as the director of
research of Waddell & Reed, Inc. and its successor, WRIMCO, since August
1987, and has been an employee of Waddell & Reed, Inc. and its successor,
WRIMCO, since June 1981. Other members of WRIMCO's investment management
department provide input on market outlook, economic conditions, investment
research and other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell
& Reed Funds, Inc., and serves as the distributor for TMK/United Funds,
Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services
Agent") in providing bookkeeping and accounting services and assistance to
the Fund and pricing daily the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted
from shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which
are explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .30 of 1% of its net assets.
The group fee is a pro rata participation based on the relative net asset
size of the Fund in the group fee computed each day on the combined net
asset values of all the funds in the United Group at the annual rates shown
in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $_____ billion as of December 31, 1995. Management fees for
the fiscal year ended December 31, 1995 were ____% 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.
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 such securities during the year,
excluding certain short-term securities and bullion. Since the turnover
rate of the Fund will be affected by a number of factors, the Fund is
unable to predict what rate the Fund will have in any particular period or
periods, although such rate is not expected to exceed 100%. However, the
rate could be substantially higher or lower in any particular period. The
factors that may affect the rate include moving from a position emphasizing
gold and other minerals-related securities to a position emphasizing U.S.
Government Securities or vice versa and the possible necessary sales of
securities to meet redemptions. The Fund may engage in short-term trading
and have a high portfolio turnover.
<PAGE>
United Gold & Government 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 Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Gold & Government Fund, Inc.
Class Y Shares
PROSPECTUS
February 19, 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.
NUP2013-Y(2-96)
printed on recycled paper
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
February 19, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a
prospectus ("Prospectus") for the Class A shares or the Class Y
shares, as applicable, of United Gold & Government Fund, Inc.
(the "Fund") dated February 19, 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 ............. 3
Investment Management and Other Services ......... 25
Purchase, Redemption and Pricing of Shares ....... 29
Directors and Officers ........................... 44
Payments to Shareholders ......................... 49
Taxes ............................................ 50
Portfolio Transactions and Brokerage ............. 54
Other Information ................................ 56
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may, from
time to time, publish the Fund's total return information 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 5.75% 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
December 31, 1995, which is the most recent balance sheet included in this
SAI, for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from January 1, 1995 to
December 31, 1995:
Five-year period from January 1, 1990 to
December 31, 1995:
Period from January 1, 1986 to
December 31, 1995:
Prior to February 19, 1996, the Fund offered only one Class of shares
to the public. Shares outstanding on that date were designated as Class A
shares. Since that date, Class Y shares of the Fund have been available to
certain institutional investors.
The Fund may also quote unaveraged or cumulative total return for a
class which reflects the change in value of an investment in that class
over a stated period of time. Cumulative total returns will be calculated
according to the formula indicated above but without averaging the rate for
the number of years in the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish
in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune,
or Morningstar Mutual Fund Values. Each class of the Fund may also compare
its performance to that of other selected mutual funds or selected
recognized market indicators such as the Standard & Poor's 500 Stock Index
and the Dow Jones Industrial Average. Performance information may be
quoted numerically or presented in a table, graph or other illustration.
All performance information that the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of a Fund's shares when redeemed may
be more or less than their original cost.
GOAL AND INVESTMENT POLICIES
The goal and investment policies of the Fund are described in the
Prospectus, which refers to the following investment methods and
practices.
Securities - General
The Fund may invest in securities including common stock, preferred
stock, debt securities and convertible securities, as described in the
Prospectus. These securities may include the following described
securities from time to time.
The Fund may purchase debt securities whose principal amount at
maturity is dependent upon the performance of a specified equity security.
The issuer of such debt securities, typically an investment banking firm,
is unaffiliated with the issuer of the equity security to whose performance
the debt security is linked. Equity-linked debt securities differ from
ordinary debt securities in that the principal amount received at maturity
is not fixed, but is based on the price of the linked equity security at
the time the debt security matures. The performance of equity-linked debt
securities depends primarily on the performance of the linked equity
security and may also be influenced by interest rate changes. In addition,
although the debt securities are typically adjusted for diluting events
such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash.
Such an issuance could adversely affect the price of the debt security. In
addition to the equity risk relating to the linked equity security, such
debt securities are also subject to credit risk with regard to the issuer
of the debt security. In general, however, such debt securities are less
volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that
pays a cumulative, fixed dividend that is senior to, and expected to be in
excess of, the dividends paid on the common stock of the issuer. At the
mandatory conversion date, the preferred stock is converted into not more
than one share of the issuer's common stock at the "call price" that was
established at the time the preferred stock was issued. If the price per
share of the related common stock on the mandatory conversion date is less
than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock
(plus cash in the amount of any accrued but unpaid dividends). At any time
prior to the mandatory conversion date, the issuer may redeem the preferred
stock upon issuing to the holder a number of shares of common stock equal
to the call price of the preferred stock in effect on the date of
redemption divided by the market value of the common stock, with such
market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends
on the preferred stock. This convertible preferred stock is subject to the
same market risk as the common stock of the issuer, except to the extent
that such risk is mitigated by the higher dividend paid on the preferred
stock. The opportunity for equity appreciation afforded by an investment
in such convertible preferred stock, however, is limited, because in the
event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be
expected to) call the preferred stock for redemption at the call price.
This convertible preferred stock is also subject to credit risk with regard
to the ability of the issuer to pay the dividend established upon issuance
of the preferred stock. Generally, convertible preferred stock is less
volatile than the related common stock of the issuer.
Risk Factors of High-Yield Investing
As an operating (i.e., nonfundamental) policy, the Fund does not
intend to invest more than 5% of its assets in non-investment grade debt
securities. Lower-quality debt securities (commonly called "junk bonds")
are considered to be speculative and involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. The market
prices of these securities may fluctuate more than high-quality securities
and may decline significantly in periods of general economic difficulty.
While the market for high-yield, high-risk corporate debt securities has
been in existence for many years and has weathered previous economic
downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of
the future performance of the high-yield, high-risk bond market, especially
during periods of economic recession. The market for lower-rated debt
securities may be thinner and less active than that for higher-rated debt
securities, which can adversely affect the prices at which the former are
sold. Adverse publicity and changing investor perceptions may decrease the
values and liquidity of lower-rated debt securities, especially in a
thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, WRIMCO's research and credit analysis are an especially
important part of managing securities of this type held by the Fund.
WRIMCO continuously monitors the issuers of lower-rated debt securities in
the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder
to seek to protect the interests of security holders if it determines this
to be in the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO relies on in
evaluating high-yield debt securities, certain risks are associated with
credit ratings. Credit ratings evaluate the safety of principal and
interest payments, not market value risk.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government Securities") include Treasury Bills
(which mature within one year of the date they are issued), Treasury Notes
(which have maturities of one to ten years) and Treasury Bonds (which
generally have maturities of more than 10 years). All such Treasury
securities are backed by the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing
Administration, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Farm Credit Banks, Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of
the United States. Some, such as securities issued by the Federal Home
Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by the Federal
National Mortgage Association, are supported only by the credit of the
instrumentality and not by the Treasury. If the securities are not backed
by the full faith and credit of the United States, the owner of the
securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States
in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government Securities may include mortgage-backed securities of
the Government National Mortgage Association ("Ginnie Mae"), the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National
Mortgage Association ("Fannie Mae"). These mortgage-backed securities
include "pass-through" securities and "participation certificates."
Another type of mortgage-backed security is a collateralized mortgage
obligation ("CMO"). See "Mortgage-Backed Securities." Timely payment of
principal and interest on Ginnie Mae pass-throughs is guaranteed by the
full faith and credit of the United States. Freddie Mac and Fannie Mae are
both instrumentalities of the U.S. Government, but their obligations are
not backed by the full faith and credit of the United States. It is
possible that the availability and the marketability (i.e., liquidity) of
the securities discussed in this section could be adversely affected by
actions of the U.S. Government to tighten the availability of its credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as
two individual securities. CATS (Certificate of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of
Registered Interest and Principal of Securities) by separating the interest
and principal components of an outstanding U.S. Treasury security and
selling them as individual securities. Bonds issued by the Resolution
Funding Corporation (REFCORP) and the Financing Corporation (FICO) can also
be separated in this fashion. Original issue zeros are zero coupon
securities originally issued by the U.S. Government, a government agency or
a corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed
by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or residential
properties. Some mortgage-backed securities, such as CMOs, make payments
of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with
interests sold in the pool; the assembly is made by an "issuer," such as a
mortgage banker, commercial bank or savings and loan association, which
assembles the mortgages in the pool and passes through payments of
principal and interest for a fee payable to it. Payments of principal and
interest by individual mortgagors are passed through to the holders of the
interest in the pool. Monthly or other regular payments on pass-through
securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.
The Fund may purchase mortgage-backed securities issued by both
government and non-government entities such as banks, mortgage lenders, or
other financial institutions. Other types of mortgage-backed securities
will likely be developed in the future, and the Fund may invest in them if
WRIMCO determines they are consistent with the Fund's goal and investment
policies.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers. In addition, regulatory or tax changes
may adversely affect the mortgage securities market as a whole. Non-
government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject to
prepayment risk. Prepayment, which occurs when unscheduled or early
payments are made on the underlying mortgages, may shorten the effective
maturities of these securities and may lower their total returns.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives
the principal payments made by the underlying mortgage-backed security,
while the holder of the "interest-only" security ("IO") receives interest
payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and carry
rights that permit holders to demand payment of the unpaid principal
balance plus accrued interest from the issuers or certain financial
intermediaries. Floating rate securities have interest rates that change
whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest
rate. These formulas are designed to result in a market value for the
instrument that approximates its par value.
Foreign Securities and Currency
Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's
investment manager, believes that there are investment opportunities as
well as risks in investing in foreign securities. Individual foreign
economies may differ favorably or unfavorably from the U.S. economy or each
other in such matters as gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Individual foreign companies may also differ favorably or unfavorably from
domestic companies in the same industry. Foreign currencies may be
stronger or weaker than the U.S. dollar or than each other. WRIMCO
believes that the Fund's ability to invest its assets abroad might enable
it to take advantage of these differences and strengths where they are
favorable.
Further, an investment in foreign securities may also be affected by
changes in exchange control regulations (i.e., currency blockage). The
Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange
(the "NYSE") and securities of some foreign companies are less liquid and
more volatile than securities of comparable domestic companies. There is
generally less government regulation of stock exchanges, brokers and listed
companies than in the United States. In addition, with respect to certain
foreign countries, there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that
could adversely affect investments in securities of issuers located in
those countries. If it should become necessary, the Fund would normally
encounter greater difficulties in commencing a lawsuit against the issuer
of a foreign security than it would against a U.S. issuer.
When purchasing foreign securities, the Fund will ordinarily purchase
securities that are traded in the U.S. or purchase American Depository
Receipts ("ADRs") which are certificates issued by U.S. depositories
representing the right to receive securities of a foreign issuer deposited
with that depository or a correspondent bank. However, the Fund may
purchase the securities of a foreign issuer directly in foreign markets so
long as, in WRIMCO's judgment, an established public trading market exists.
Such investments may increase the risk with respect to the liquidity of the
Fund's portfolio and the Fund's ability to meet a large number of
shareholder redemption requests should there be economic, political or
social turmoil in a country in which the Fund has a substantial portion of
its assets invested or should relations between the U.S. and the foreign
country deteriorate markedly.
Restricted Securities
The Fund may purchase foreign restricted securities. However, it
will not purchase such restricted securities if as a result of such
purchase more than 5% of its total assets would consist of restricted
securities. This is a fundamental policy that may only be changed with
shareholder approval. Restricted securities are subject to legal or
contractual restrictions on resale because they are not registered under
the Securities Act of 1933, as amended (the "1933 Act").
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the 1933
Act, or in a registered public offering. Where registration is required,
the Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to seek registration of the
security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent the Fund from reselling
the securities at a time when such sale would be desirable.
Restricted securities that are traded in foreign markets are often
subject to restrictions that prohibit resale to U.S. persons or entities or
permit sales only to foreign broker-dealers who agree to limit their resale
to such persons or entities. The buyer of such securities must enter into
an agreement that, usually for a limited period of time, it will resell
such securities subject to such restrictions. Restricted securities in
which the Fund seeks to invest need not be listed or admitted to trading on
a foreign or domestic exchange and may be less liquid than listed
securities. See "Illiquid Investments."
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 only be changed 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 that 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 procedure, the Fund may lend securities only to broker-dealers and
financial institutions deemed creditworthy by WRIMCO. The Fund will make
loans only under rules of the NYSE, which presently require the borrower to
return the securities 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 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 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 or sold by the Fund are subject to
market fluctuation; their value may be less or more when delivered than the
purchase price paid or received. For example, delivery to the Fund and
payment by the Fund in the case of a purchase by it, or delivery by the
Fund and payment to it in the case of a sale by the Fund, may take place a
month or more after the date of the transaction. The purchase or sale
price are fixed on the transaction date. The Fund will enter into when-
issued or delayed-delivery transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering
into the transaction. No interest accrues to the Fund until delivery and
payment is completed. When the Fund makes a commitment to purchase U.S.
Government 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 so sold by the Fund on a delayed-delivery basis are also subject
to market fluctuation; their value when the Fund delivers them may be more
than the purchase price the Fund receives. When the Fund makes a
commitment to sell U.S. Government Securities on a delayed-delivery basis,
it will record the transaction and thereafter value the U.S. Government
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 U.S. Government Securities
are delivered to the Fund and before it has paid for them (the "settlement
date"), the Fund could sell the U.S. Government Securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will
hold aside or segregate cash or other securities, other than those
purchased on a when-issued or delayed-delivery basis, at least equal to the
amount it will have to pay on the settlement date; these other securities
may, however, be sold at or before the settlement date to pay the purchase
price of the when-issued or delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that the Fund may not invest more than
10% of its net assets in illiquid investments. Investments currently
considered to be illiquid include: (i) repurchase agreements not
terminable within seven days; (ii) fixed time deposits (including insured
deposits) subject to withdrawal penalties other than overnight deposits
(other than deposits payable at principal amount plus accrued interest on
demand or within seven days after demand that, in the opinion of WRIMCO,
have minimal credit risk); (iii) restricted securities not determined to be
liquid pursuant to guidelines established by the Fund's Board of Directors;
(iv) securities for which market quotations are not readily available; and
(v) unlisted options and their underlying collateral.
Indexed Securities
The Fund may purchase securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals
or other commodities or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument
or statistic. Gold-indexed securities, for example, typically provide for
a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-
indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by
reference to the values of one or more specified foreign currencies, and
may offer higher yields than U.S. dollar-denominated securities of
equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of a number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations
and certain U.S. Government agencies. Certain indexed securities that are
not traded on an established market may be deemed illiquid.
Investment in Warrants
The Fund may not invest more than 2% of its assets valued at the
lower of cost or market in warrants. Warrants acquired in units or
attached to other securities are not considered for purposes of computing
the 2% limitation. Warrants are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities.
Warrants have no voting rights, receive no dividends and have no rights
with respect to the assets of the issuer. Warrants are highly volatile
and, therefore, more susceptible to a sharp decline in value than the
underlying security might be. They are also generally less liquid than an
investment in the underlying shares.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long
as such regulations are in effect and applicable to the Fund, the Fund will
not invest in securities of other investment companies, except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from the purchase other than the customary broker's commission, or
except when the purchase is part of a plan of merger, consolidation,
reorganization or acquisition.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain
options to attempt to enhance income or yield or may attempt to reduce
overall risk of its investments by using certain options, futures contracts
(sometimes referred to as "futures"), and forward contracts ("forward
contracts"). Options, futures, and forward contracts 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, forward 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, forward contracts or other techniques are developed. WRIMCO may
utilize these opportunities to the extent that they are consistent with the
Fund's goal and permitted by the Fund's investment limitations and
applicable regulatory authorities. The Fund's Prospectus or SAI will be
supplemented to the extent that new products or techniques involve
materially different risks than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the
sections that follow.
(1) Successful use of most Financial Instruments depends upon
WRIMCO's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed.
(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, futures
contracts, currencies or forward contracts, or (2) cash, receivables and
short-term debt securities, with a value sufficient at all times to cover
its potential obligations to the extent not covered as provided in (1)
above. The Fund will comply with SEC guidelines regarding cover for these
instruments and will, if the guidelines so require, set aside cash, U.S.
Government Securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount as
determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Financial Instrument is open,
unless they are replaced with other appropriate assets. As a result, the
commitment of a large portion of the Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Options. The Fund may write (i.e., sell) call options ("calls") but
only if (i) the investments to which the call relates (the "related
investments") are either securities (whether or not they are U.S.
Government Securities) or futures contracts (see "Futures Contracts and
Options Thereon" below) relating to U.S. Government Securities ("Government
Securities Futures"); (ii) the calls are listed on a domestic securities or
commodities exchange or quoted on the Nasdaq Stock Market ("Nasdaq"); and
(iii) the calls are covered, i.e., the Fund owns the related investments
(or other investments acceptable for escrow arrangements) while the call is
outstanding.
The Fund may purchase calls but only if (i) the related investments
are either U.S. Government Securities or Government Securities Futures; and
(ii) the calls are listed on a domestic securities or commodities exchange
or quoted on Nasdaq.
The Fund may purchase put options ("puts") but only if (i) the
investments to which the put relates (the "related investments") are U.S.
Government Securities or Government Securities Futures; and (ii) either (a)
the puts are listed on a domestic securities or commodities exchange or
quoted on Nasdaq; or (b) are "optional delivery standby commitments.
The Fund may write (i.e., sell) puts but only if (i) the related
investments are U.S. Government Securities or Government Securities
Futures; and (ii) the puts are listed on a domestic securities or
commodities exchange or quoted on Nasdaq.
The above limitations on the puts and calls the Fund may write or
purchase are fundamental policies, i.e., rules that may only be changed by
a shareholder vote. The Fund has no fundamental policy as to percentage
limitations on its use of options.
At the present time, no puts or calls of any kind are quoted on
Nasdaq. The Fund has undertaken to certain State Securities Commissions
that it will not engage in options trading on Nasdaq listed securities and
that it will not purchase put options or call options if after such
purchase the aggregate premium paid for all such options owned at that time
would exceed 5% of the Fund's total 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
of the option, minus the premium received, the Fund would expect to suffer
a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the
security appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund
will be obligated to sell the security at less than its market value.
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 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 purchase
and sell listed options. Exchange markets for options on debt securities
exist, but these instruments are primarily traded on the over-the-counter
market. Exchange-traded options in the United States are issued by a
clearing organization affiliated with the exchange on which the option is
listed that, in effect, guarantees completion of every exchange-traded
option transaction.
The Fund's ability to establish and close out positions in exchange-
listed options depends on the existence of a liquid market. However, there
can be no assurance that such a market will exist at any particular time.
If the Fund were unable to effect a closing transaction for an option
it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Futures Contracts and Options Thereon. The Fund may buy and sell
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 and
options on futures contracts to those relating to U.S. Government
Securities is a fundamental policy that may only be changed by a
shareholder vote. The Fund has no other fundamental policies as to its use
of futures contracts and options on futures contracts and thus no
fundamental policy as to a percentage limit thereon; however, see below for
limitations relating to the CFTC.
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures
can serve as a short hedge. Writing call options on futures contracts can
serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indices. Similarly, writing put
options on futures contracts can serve as a limited long hedge.
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 that Government Security Future. If WRIMCO wishes to lengthen
the average duration of the Fund's fixed-income portfolio, the Fund may buy
a Government Security 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 futures position varies, a process
known as "marking-to-market." Variation margin does not involve borrowing,
but rather represents a daily settlement of the Fund's obligations to or
from a futures broker. When the Fund purchases an option on a future, the
premium paid plus transaction costs is all that is at risk. In contrast,
when the Fund purchases or sells a futures contract or writes a call or put
option thereon, it is subject to daily variation margin calls that could be
substantial in the event of adverse price movements. If the Fund has
insufficient cash to meet daily variation margin requirements, it might
need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions
in options, by selling or purchasing, respectively, an instrument identical
to the instrument purchased or sold. Positions in futures and options on
futures may be closed only on an exchange or board of trade that provides a
secondary market. The Fund intends to enter into futures and options on
futures only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a
market will exist for a particular contract at a particular time. In such
event, it may not be possible to close a futures contract or options
position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures 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.
Foreign Currency Hedging Strategies--Special Considerations. The Fund
may use foreign currency forward contracts, as described below, to attempt
to hedge against movements in the values of the foreign currencies in which
the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the Fund owns or intends to
acquire that are attributable to changes in the value of the currency in
which it is denominated. Such hedges do not, however, protect against
price movements in the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a
particular currency when no forward contracts on that currency are
available or such forward contracts are more expensive than certain other
forward contracts. In such cases, the Fund may seek to hedge against price
movements in that currency by entering into transactions using forward
contracts on another currency or a basket of currencies, the values of
which WRIMCO believes will have a high degree of positive correlation to
the value of the currency being hedged. The risk that movements in the
price of the forward contract will not correlate perfectly with movements
in the price of the currency subject to the hedging transaction is
magnified when this strategy is used.
The value of forward contracts depends on the value of the underlying
currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such forward contracts,
the Fund could be disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large
transactions in the interbank market and thus might not reflect odd-lot
transactions where rates might be less favorable.
Settlement of hedging transactions involving foreign currencies might
be required to take place within the country issuing the underlying
currency. Thus, the Fund might be required to accept or make delivery of
the underlying foreign currency in accordance with any U.S. or foreign
regulations regarding the maintenance of foreign banking arrangements by
U.S. residents and might be required to pay any fees, taxes and charges
associated with such delivery assessed in the issuing country.
Forward Contracts. The Fund may enter into forward contracts to
purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. A forward contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any
fixed number of days (term) from the date of the forward contract agreed
upon by the parties, at a price set at the time of the forward contract.
These forward contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the Fund may
purchase a forward contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the Fund intends to acquire.
Forward contract transactions may also serve as short hedges; for example,
the Fund may sell a forward contract to lock in the U.S. dollar equivalent
of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
The Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return for
U.S. dollars to hedge against possible declines in the pound's value. Such
a hedge, sometimes referred to as a "position hedge," would tend to offset
both positive and negative currency fluctuations, but would not offset
changes in security values caused by other factors. The Fund could also
hedge the position by selling another currency expected to perform
similarly to the pound sterling, for example, by entering into a forward
contract to sell Deutsche Marks or European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy
hedge," could offer advantages in terms of cost, yield or efficiency, but
generally would not hedge currency exposure as effectively as a simple
hedge into U.S. dollars. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
The cost to the Fund of engaging in forward contracts varies with
factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward contracts are
usually entered into on a principal basis, no fees or commissions are
involved. When the Fund enters into a forward contract, it relies on the
counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would
result in the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward contracts can enter into offsetting closing transactions, similar
to closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward contracts, with the
result that closing transactions generally can be made for forward
contracts only by negotiating directly with the counterparty. Thus, there
can be no assurance that the Fund will in fact be able to close out a
forward contract at a favorable price prior to maturity. In addition, in
the event of insolvency of the counterparty, the Fund might be unable to
close out a forward contract at any time prior to maturity. In either
event, the Fund would continue to be subject to market risk with respect to
the position, and would continue to be required to maintain a position in
securities denominated in the foreign currency or to maintain cash or
securities in a segregated account.
The precise matching of forward contract amounts and the value of the
securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, the Fund might need
to purchase or sell foreign currencies in the spot (cash) market to the
extent such foreign currencies are not covered by forward contracts. The
projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions
made with regard to overall diversification strategies. However, WRIMCO
believes that it is important to have the flexibility to enter into such
forward contracts when it determines that the best interests of the Fund
will be served.
The Fund will enter into forward contracts only for hedging purposes
and has made an undertaking to a State securities commission to this
effect.
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 natures of those markets, are
subject to the following factors, which may create distortions. First, all
participants in the futures market are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close future contracts through offsetting
transactions, which could distort the normal relationship between the cash
and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore increased participation by
speculators in the futures market may cause temporary price distortions.
Due to the possibility of distortion, a correct forecast of general
interest trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in the expectations as to the extent of various
interest 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.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and, together with
certain restrictions described in the Prospectus, cannot be changed without
shareholder approval. Under these additional restrictions the Fund may
not:
(i) Buy real estate nor any nonliquid interest in real estate
investment trusts;
(ii) Buy the securities of any company if it would then own more than
10% of its voting securities or any class of its securities; or
buy the securities of any company if more than 5% of the Fund's
total assets (valued at market value) would then be invested in
that company; or buy the securities of companies in any one
industry if more than 25% of the Fund's total assets would then be
in companies in that industry, except, as stated in the
Prospectus, the Fund intends to concentrate in gold and other
minerals-related securities;
(iii) Buy shares of other investment companies that redeem their
shares. The Fund can buy shares of investment companies that do
not redeem their shares if it does so in a regular transaction in
the open market and then does not have more than one tenth (i.e.,
10%) of its total assets in these shares;
(iv) Make loans other than certain limited types of loans; the Fund
can also buy debt securities that have been sold to the public; it
can also lend its portfolio securities (see "Lending Securities"
above) and enter into repurchase agreements (see "Repurchase
Agreements" above);
(v) Invest for the purpose of exercising control or management of
other companies;
(vi) 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 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;
(vii) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(viii) Sell securities short or buy securities on margin, however, the
Fund may make margin deposits in connection with Government
Securities Futures contracts and options thereon; also, the Fund
may not engage in arbitrage transactions;
(ix) Engage in the underwriting of securities or invest in
restricted securities, except up to 5% of total assets taken at
the time of purchase may be invested in restricted foreign
securities;
(x) Buy commodities except that it may invest up to 25% of its total
assets in gold, silver and platinum and may buy put and call
options and Government Securities Futures. 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 also not buy any minerals-related programs or leases;
(xi) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets; this does not prohibit the
escrow deposits required by put and call transactions. The Fund
may borrow money from banks as a temporary measure or for
extraordinary or emergency purposes but only up to 5% of its total
assets.
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
December 31, 1995 and 1994 was 64.89% and _______%, respectively. A high
turnover rate will increase transaction costs and commission costs that
will be borne by the Fund and could generate taxable income or loss.
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 Waddell & Reed, Inc. and WRIMCO is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc.
is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Board of Directors prior to
approving any Shareholder Servicing Agreement or Accounting Services
Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company. United Investors Management Company is a wholly-owned subsidiary
of Torchmark Corporation. Torchmark Corporation is a publicly-held
company. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of
Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or the
company's inception date, whichever was later, and to TMK/United Funds,
Inc. since that fund's inception, until January 8, 1992 when it assigned
its duties as investment manager for these funds (and the related
professional staff) to WRIMCO. WRIMCO has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September
1992 and United Asset Strategy Fund, Inc. since it commenced operations in
March 1995. Waddell & Reed, Inc. serves as principal underwriter for the
investment companies in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. and serves as the 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 by the Fund to WRIMCO during the Fund's
fiscal years ended December 31, 1995, 1994 and 1993 were $___________,
$312,911 and $268,796, respectively. For purposes of calculating the daily
fee the Fund does not include money owed to it by Waddell & Reed, Inc. for
shares which it has sold but not yet paid the Fund. The Fund accrues and
pays this fee daily.
Under the Shareholder Servicing Agreement with respect to Class A
shares, the Fund pays the Agent a monthly fee of $1.0208 for each
shareholder account that was in existence at any time during the prior
month, plus $0.30 for each account on which dividend or distribution, of
cash or shares, had a record date in that month. For Class Y
shares, the Fund pays the Agent a monthly fee equal to one-twelfth of
.15 of 1% of the average daily net assets of that Class for the
preceding month. The Fund also pays certain out-of-pocket expenses
of the Agent, including long distance telephone communications
costs, microfilm and storage costs for certain documents; forms,
printing and mailing costs; and costs of legal and special services
not provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a
monthly fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended December 31, 1995,
1994 and 1993 were $__________________, $20,000 and $20,000, respectively.
The State of California imposes limits on the amount of certain
expenses the Fund can pay. If these expense limitations are exceeded,
WRIMCO is required to reduce the amount by which these expenses exceed the
expense limitation. In the past, and for future fiscal periods, the state
of California has granted the Fund a variance from the expense limitation
to allow the Fund to exclude from its aggregate annual expenses transfer
agency fees, professional fees, and report costs attributable to the Fund's
average account size being smaller than the average account size for
investment companies with an objective similar to the Fund's and the amount
by which its custodian fee ratio exceeds the average custodian fee ratio
for the domestic portion of portfolio securities of the equity funds in the
United Group. Other expenses excluded from aggregate annual expenses
include interest, taxes, brokerage commissions and extraordinary expenses,
such as litigation.
The Fund will notify shareholders of any change in the variance. For
the fiscal years ended December 31, 1995, 1994 and 1993, no expense
reimbursement by WRIMCO was required.
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 December 31, 1995, 1994 and 1993 were
$________, $153,080 and $180,359, respectively. The amounts retained by
Waddell & Reed, Inc. for these same periods were $_____________, $64,858
and $79,879, 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, and other third
parties, who may regularly sell shares of the Fund, and other third
parties, for providing shareholder services and/or maintaining shareholder
accounts with respect to Class A shares. Service fees in the amount of
$_________ were paid (or accrued) by the Fund with respect to Class A
shares for the fiscal year ended December 31, 1995.
The Plan and the Service Agreement were approved by the Fund's Board
of Directors, including the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter,
the "Plan Directors"). The Plan was also approved by the affected
shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding Class A shares of the Fund, and (iv) while the Plan
remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, it 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 December 31, 1995 was as follows:
Net asset value per Class A share (Class A net assets divided by
Class A shares outstanding) .....................
Add: selling commission (5.75% of offering price)..
----
Maximum offering price per Class A share (Class A net asset value
divided by 94.25%) ..............................
====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge.
The offering price of a Class Y share is its net asset value next
determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value per share and offering price are ordinarily
computed once daily on each day that the NYSE is open for trading as of the
later of the close of the regular session of the NYSE (ordinarily 4:00 p.m.
Eastern time) or the close of the regular session of any domestic
securities or commodities exchange on which an option or future held by the
Fund is traded. The NYSE annually announces the days on which it will not
be open for trading. The most recent announcement indicates that the NYSE
will not be open on the following days: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. However, it is possible that the NYSE may close on
other days. The net asset value will change every business day, since the
number of shares outstanding and the value of the assets changes every
business day.
Except as otherwise noted, the securities in the Fund's portfolio that
are listed or traded on a national securities exchange are valued on the
basis of the last sale price on that day or, lacking any sales at a price
that is the mean between the closing bid and asked prices. Securities that
are traded over-the-counter are valued at the mean between bid and asked
prices provided by Nasdaq. Bonds, other than U.S. Government Securities
and convertible bonds, are valued using a pricing system provided by a
major dealer in bonds. Convertible bonds are valued using this pricing
system only on days when there is no sale reported. Short-term debt
securities are valued at amortized cost, which approximates market.
Foreign securities that are listed or traded only on a foreign securities
exchange will be valued using the last sale price on that exchange prior to
the computation, or, if no sale is reported at that time, the mean between
the bid and asked prices. Foreign securities represented by American
Depository Receipts listed or admitted to trading on a domestic securities
exchange or traded in the United States over-the-counter market will be
valued in the same manner as domestic exchange listed or over-the-counter
securities. Foreign securities issued or guaranteed by any foreign
government or any subdivision, agency or instrumentality thereof are valued
by the same methods indicated above for the valuation of bonds. As to
foreign securities that are quoted in foreign currencies, such quotation
will be converted to U.S. dollars using foreign exchange rates. When
market quotations are not readily available, securities and other assets
are valued at fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors.
As to U.S. Government Securities, the Board of Directors has decided
to use the prices quoted by a dealer in bonds that offers a pricing service
to value U.S. Government Securities. The Board of Directors believes that
such a service does quote their fair value. The Board of Directors,
however, may hereafter determine to use another service or use the bid
price quoted by dealers if it should determine that such service or quotes
more accurately reflect the fair value of U.S. Government Securities held
by the Fund.
Gold and silver bullion will be valued at the last spot settlement
price on the Commodity Exchange, Inc., and platinum bullion will be valued
at the last spot settlement price or, if not available, the settlement
price of the nearest contract month on the New York Mercantile Exchange.
If prices are not available on any of these exchanges, the relevant
precious metal will be valued at prices in the bullion market or markets
approved by the Board of Directors for that purpose; if there is no readily
available market quotation, then bullion will be valued at fair value as
determined in good faith, by 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 option trading on national securities exchanges is 4:10 P.M.
Eastern time and the close 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 investment 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.
Foreign currency exchange rates are generally determined prior to
the close of trading of the regular session of the NYSE. Occasionally
events affecting the value of foreign investments and such exchange rates
occur between the time at which they are determined and the close of the
regular session of trading on the NYSE, which events will not be reflected
in a computation of the Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange
rates occur during such time period, investments will be valued at their
fair value as determined in good faith by or under the direction of the
Board of Directors. The foreign currency exchange transactions of the Fund
conducted on a spot (that is, cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market.
This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due
to the costs of converting from one currency to another.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Fund's Board of
Directors. They are accounted for in the same manner as exchange-listed
puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with
the exceptions described in this paragraph. A $100 minimum initial
investment pertains to certain exchanges of shares from another fund in the
United Group. A $50 minimum initial investment pertains to purchases for
certain retirement plan accounts. A $50 minimum initial investment also
pertains to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A
minimum initial investment of $25 is applicable to purchases made through
payroll deduction for or by employees of WRIMCO, Waddell & Reed, Inc.,
their affiliates, or certain retirement plan accounts. Except with respect
to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges
for Shares of Other Funds in the United Group."
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $10 million within the first twelve
months after initial investment. There is no initial investment minimum
for other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales
charges. The schedule of sales charges appears in the Prospectus for Class
A shares. For the purpose of taking advantage of the lower sales charges
available for large purchases, a purchase in any of categories 1 through 7
listed below made by an individual or deemed to be made by an individual
may be grouped with purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or
spouse in a Uniform Gift to Minors Act ("UGMA")or Uniform Transfers to
Minors Act ("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), Section 457 of the Internal
Revenue Code of 1986, as amended (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 $75,000; at the
same time, H's parents open up three UGMA accounts for H and W's
three minor children and invest $10,000 in each child's name; the
combined purchase of $105,000 of Class A shares is subject to a
reduced sales load of 4.75% provided that Waddell & Reed, Inc. is
advised that the purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional
purchase is made in that account or in any account eligible for grouping
with that account, the additional purchase is combined with the net asset
value of the existing account as of the date the new purchase is accepted
by Waddell & Reed, Inc. for the purpose of determining the availability of
a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His
wife, W, now wishes to invest $20,000 in Class A shares of the
Fund. W's purchase will be combined with H's existing account and
will be entitled to a reduced sales charge of 4.75%. H's original
purchase was subject to a full sales charge and the reduced charge
does not apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced
charge and provide Waddell & Reed, Inc. with the name and number of the
existing account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan the shares held under 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.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account
in determining the amount which must be invested under the Statement of
Intention only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention.
An amount equal to 5% of the purchase required under the Statement of
Intention will be held "in escrow." If a purchaser does not, during the
period covered by the Statement of Intention, invest the amount required to
qualify for the reduced sales charge under the terms of the Statement of
Intention, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge
owed on purchases of Class A shares made under a Statement of Intention
which is not completed will be collected by redeeming part of the shares
purchased under the Statement of Intention and held "in escrow" unless the
purchaser makes payment of this amount to Waddell & Reed, Inc. within 20
days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement of
Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement of Intention will be deducted in computing the
aggregate purchases under the Statement of Intention.
Statements of Intention are not available for purchases made under 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 spouse's and 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 the Uniform Gifts (or Transfers)
to Minors Act 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 in a 401(k) plan having 100 or more eligible employees and
purchases in a 457 plan having 100 or more eligible employees may be made
at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of
instances in which the Fund's Class A shares are sold or issued on a basis
other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one
time or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The
reasons for these quantity discounts are, in general, that (i) they are
traditional and have long been permitted in the industry and are therefore
necessary to meet competition as to sales of shares of other funds having
such discounts, (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and distributions), and
(iii) they are designed to avoid an unduly large dollar amount of sales
charges on substantial purchases in view of reduced selling expenses.
Quantity discounts are made available to certain related persons for
reasons of family unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at
net asset value are permitted because a sales charge has already been paid
on the shares exchanged. Sales of Class A shares without sales charge are
permitted to Directors, officers and certain others due to reduced or
eliminated selling expenses and since such sales may aid in the development
of a sound employee organization, encourage incentive, responsibility and
interest in the United Group and an identification with its aims and
policies. Limited reinvestments of redemptions of Class A shares at no
sales charge are permitted to attempt to protect against mistaken or not
fully informed redemption decisions. Class A shares may be issued at no
sales charge in plans of reorganization due to reduced or eliminated sales
expenses and since, in some cases, such issuance is exempted by the 1940
Act from the otherwise applicable restrictions as to what sales charge must
be imposed. In no case in which there is a reduced or eliminated sales
charge are the interests of existing Class A shareholders adversely
affected since, in each case, the Fund receives the net asset value per
share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive 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. of the manner in which you want
your shares redeemed to make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of
$50 or more;
Second. To get a monthly payment, which will change each month, equal
to one-twelfth of a percentage of the value of the shares in the Account;
you fix the percentage; or
Third. To get a monthly or quarterly payment, which will change each
month or quarter, by redeeming a 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 reinvested in additional Class A shares. All payments
are made by redeeming shares, which may involve a gain or loss for tax
purposes. To the extent that payments exceed dividends and distributions,
the number of 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 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
Once a sales charge has been paid on Class A shares of a fund in the
United Group, these shares and any shares added to them from reinvestment
of dividends or distributions may be freely exchanged for Class A shares of
another fund in the United Group. The shares you exchange must be worth at
least $100 or you must already own shares of the fund in the United Group
into which you want to exchange.
You may exchange Class A shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge
was paid on these shares; or (ii) the shares were received in exchange for
shares for which a sales charge was paid; or (iii) the shares were acquired
from reinvestment of dividends and distributions paid on such shares.
There may have been one or more such exchanges so long as a sales charge
was paid on the shares originally purchased. Also, shares acquired without
a sales charge because the purchase was $2 million or more will be treated
the same as shares on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Class A shares of these funds may be exchanged for
Class A shares of the Fund only if (i) you have received those shares as a
result of one or more exchanges of shares on which a sales charge was
originally paid, or (ii) the shares have been held from the date of the
original purchase for at least six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any
other fund in the United Group. The shares of United Cash Management, Inc.
which you designate for automatic exchange must be worth at least $100 or
you must own Class A shares of the fund in the United Group into which you
want to exchange. The minimum value of shares which you may designate for
automatic exchange 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 the Fund and use the proceeds to
purchase Class Y shares of the Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges
Class Y shares of 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 we receive your exchange
request in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified
at any time and any such exchange may not be accepted.
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
certain 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
redemptions of shares of the Fund may be made in portfolio securities when
the Fund's Board of Directors determines that conditions exist making cash
payments undesirable. Securities used for payment of redemptions are
valued at the value used in figuring net asset value. There would be
brokerage costs to the redeeming shareholder in selling such securities.
The Fund, however, has elected to be governed by Rule 18f-1 under the 1940
Act, pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment
privilege for Class A shares under which, if you redeem your Class A shares
and then decide it was not a good idea, you may reinvest. If Class A
shares of the Fund are then being offered, you can put all or part of your
redemption payment back into Class A shares of the Fund without any sales
charge at the net asset value next determined after you have returned the
amount. Your written request to do this must be received within 30 days
after your redemption request was received. You can do this only once as
to Class A shares of the Fund. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at net asset value in a
Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under
any account or any plan if the aggregate net asset value of such shares
(taken at cost or value as the Board of Directors may determine) is less
than $500. The Board of Directors has no intent to compel redemptions in
the foreseeable future. If it should elect to compel redemptions,
shareholders who are affected will receive prior written notice and will be
permitted 60 days to bring their accounts up to the minimum before this
redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board of Directors
has responsibility for establishing broad corporate policies for the Fund
and for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
The principal occupation during at least the past five years of each
Director and officer of the Fund is given below. Each of the persons
listed through and including Mr. Wright is a member of the Fund's Board of
Directors. The other persons are officers but not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes
each of the registered investment companies in the United Group of Mutual
Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. Each of the
Fund's Directors is also a Director of each of the funds in the Fund
Complex and each of the Fund's officers, with the exception of Mr. Avery,
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 of Gilliland & Hayes,
P.A., a law firm; formerly, President of 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.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to
Mr. Judd's property was filed under the Federal bankruptcy laws and is now
final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company; formerly, Director of Waddell & Reed Asset Management Company,
United Investors Management Company and United Investors Life Insurance
Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor
for Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan.
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.
Michael L. Avery
Vice President of the Fund; Vice President of WRIMCO; formerly,
Vice President of Waddell & Reed, Inc.
John M. Holliday
Vice President of the Fund and nine other funds in the Fund
Complex; Senior Vice President of WRIMCO and of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed,
Inc.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell &
Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be
deemed to be "interested persons" as defined in the 1940 Act of its
underwriter, Waddell & Reed, Inc., or of WRIMCO. The Directors who may be
deemed to be "interested persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the
Board provided the director has attained the age of 75 and has served as a
director of the funds in the United Group for a total of at least five
years. A Director Emeritus receives fees in recognition of his past
services whether or not services are rendered in his capacity as Director
Emeritus, but has no authority or responsibility with respect to management
of the Fund. Currently no person serves as Director Emeritus.
The funds in the United Group (with exception of United Asset
Strategy Fund, Inc.), 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 January 1, 1996, the
fee was $40,000 per year) 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. The officers are paid by WRIMCO or its affiliates.
During the Fund's fiscal year ended December 31, 1995, the Fund's
Directors received the following fees for service as a director:
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 125 0 45,000
Dodds I. Buchanan 125 0 45,000
Jay B. Dillingham 125 0 45,000
Linda Graves 29 0 12,000
John F. Hayes 125 0 45,000
Glendon E. Johnson 125 0 45,000
James B. Judd 26 0 11,000
William T. Morgan 125 0 45,000
Doyle Patterson 125 0 45,000
Eleanor B. Schwartz 29 0 12,000
Frederick Vogel III 125 0 45,000
Paul S. Wise 125 0 45,000
Leslie S. Wright 117 0 42,000
Shareholdings
As of January 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 three sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is net investment income, which is
derived from the dividends, interest and earned discount on the securities
the Fund holds, less expenses (which will vary by class). The second
source is 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 third source is net realized gains from foreign
currency transactions. The payments made to shareholders from net
investment income, net short-term capital gains and net realized gains from
certain foreign currency transactions are called dividends. Payments, if
any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net realized capital gains
(the excess of net long-term capital gains over net short-term capital
losses). It may or may not have such gains, depending on whether
securities are sold and at what price. If the Fund has net realized
capital gains, it will ordinarily pay distributions once each year, in the
latter part of the fourth calendar quarter. Even if the Fund has capital
gains for a year, the Fund does not pay out the gains if it has applicable
prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you
want cash for your dividends and distributions, (ii) you want your
dividends and distributions paid in shares of the 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 paid in shares of the Fund of the
same class as that with respect to which they were paid. You can change
your instructions at any time. If you give no instructions, your dividends
and distributions will be paid in shares of the Fund of the same class as
that with respect to which they were paid. All payments in shares are at
net asset value without any sales charge. The net asset value used for
this purpose is that computed as of the record date for the dividend or
distribution, although this could be changed by the Board of Directors.
Even if you get dividends and distributions on Class A shares in cash,
you can thereafter reinvest them (or distributions only) in Class A shares
of the Fund at net asset value (i.e., with 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 net investment income, net short-
term capital gains and net gains from certain foreign currency
transactions) and must meet several additional requirements. These
requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments
with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived with respect to
its business of investing in securities or those currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income
each taxable year from the sale or other disposition of securities, or any
of the following, that were held for less than three months -- (i) options,
futures or forward contracts (other than those on foreign currencies), or
(ii) foreign currencies (or options, futures or forward contracts thereon)
that are not directly related to the Fund's principal business of investing
in securities (or in options and futures with respect to securities)
("Short-Short Limitation"); (3) at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government Securities, securities
of other RICs and other securities that are limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities ("50% Diversification Requirement"); 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.
Investments in precious metals would have adverse tax consequences for
the Fund and its shareholders if it either (1) derived more than 10% of its
gross income in any taxable year from the disposition of precious metals
and from other income that does qualify under the Income Requirement or (2)
held precious metals in such quantities that the Fund failed to satisfy the
50% Diversification Requirement for any quarter. The Fund intends to
manage its portfolio so as to avoid failing to satisfy those requirements
for these reasons.
Dividends and distributions declared by the Fund in October, November
or December of any year and payable to shareholders of record on a date in
any of those months are deemed to have been paid by the Fund and received
by you on December 31 of that year even if they are paid by the Fund during
the following January. Accordingly, those dividends and distributions will
be taxed to you for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for a dividend or distribution, the 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 gain net
income for the one-year period ending on October 31 of that year, plus
certain other amounts.
It is the Fund's policy to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Fund
may defer into the next calendar year net capital losses incurred between
each November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate
these foreign taxes, however, and many foreign countries do not impose
taxes on capital gains in respect of investments by foreign investors.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general,
meets either of the following tests: (1) at least 75% of its gross income
is passive or (2) an average of at least 50% of its assets produce, or are
held for the production of, passive income. Under certain circumstances,
the Fund will be subject to Federal income tax on a portion of any "excess
distribution" received on the stock of a PFIC or of any gain on disposition
of the stock (collectively "PFIC income"), plus interest thereon, even if
the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund would be required to include in income each
year its pro rata share of the QEF's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which would have to be distributed to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax -- even
if those earnings and gain were not received by the Fund. In most
instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as the Fund, would be entitled to elect to "mark-to-market"
their stock in certain PFICs. "Marking-to-market," in this context, means
recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market value of such a PFIC's stock over the adjusted
basis in that stock (including mark-to-market gain for each prior year for
which an election was in effect).
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of a debt security denominated in a foreign currency
that are attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security and the date of
disposition, and (3) that are attributable to fluctuations in exchange
rates that occur between the time the Fund accrues interest, dividends or
other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects the receivables or
pays the liabilities, generally are treated as ordinary income or loss.
These gains or losses, referred to under the Code as "section 988" gains or
losses, may increase or decrease the amount of the Fund's investment
company taxable income to be distributed to its shareholders.
Income from Options, Futures and Currencies
The use of hedging strategies, such as writing (selling) and
purchasing options and futures and entering into forward contracts,
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 foreign currencies (except
certain gains therefrom that may be excluded by future regulations), and
income from transactions in options, futures and forward 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, futures and forward contracts
(other than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures and forward
contracts thereon, that are not directly related to the Fund's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the Short-Short Limitation if they are
held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Fund satisfies the Short-Short Limitation. Thus, only the net gain (if
any) from the designated hedge will be included in gross income for
purposes of that limitation. The Fund intends that, when it engages in
hedging transactions, they will qualify for this treatment, but at the
present time it is not clear whether this treatment will be available for
all the Fund's hedging transactions. To the extent this treatment is not
available, the Fund may be forced to defer the closing out of certain
options, futures and forward contracts beyond the time when it otherwise
would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gain. If the Fund enters into a closing purchase transaction, it
will have a short-term capital gain or loss based on the difference between
the premium it received for the option it wrote and the premium it pays for
the option it buys. If an option written by the Fund expires without being
exercised, the premium it received also will be a short-term capital gain.
If such an option is exercised and the Fund thus sells the securities
subject to the option, the premium the Fund receives will be added to the
exercise price to determine the gain or loss on the sale. The Fund will
not write so many options that it could fail to continue to qualify as a
RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at
the end of each taxable year, other than section 1256 contracts that are
part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply, are "marked-to-market"
(that is, treated as sold for their fair market value) for Federal income
tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, are treated as long-term
capital gain or loss, and the balance is treated as short-term capital gain
or loss. Section 1256 contracts also may be marked-to-market for purposes
of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which the Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short
sale" rules applicable to straddles. If the Fund makes certain elections,
the amount, character and timing of the recognition of gains and losses
from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.
The Fund may acquire zero coupon or other securities issued with
original issue discount. As a holder of those securities, the Fund must
include in its income any original issue discount that accrues on the
securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
original issue discount, in order to satisfy the distribution requirement
required above and avoid imposition of the Excise Tax, it may be required
in a particular year to distribute as a dividend an amount that is greater
than the total amount of cash it actually receives. Those distributions
will be made from the Fund's cash assets or from the proceeds of sales of
portfolio securities, if necessary. The Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain. In addition, any such
gains may be realized on the disposition of securities held for less than
three months. Because of the Short-Short Limitation, any such gains would
reduce the Fund's ability to sell other securities or certain options,
futures or forward contracts held for less than three months that it might
wish to sell in the ordinary course of its portfolio management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the
portfolio of the Fund. Transactions in securities other than those for
which an exchange is the primary market are generally done with dealers
acting as principals or market makers. Brokerage commissions are paid
primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution
can be obtained. The individual who manages the Fund may manage other
advisory accounts with similar investment objectives. It can be
anticipated that the manager will frequently place concurrent orders for
all or most accounts which the manager has responsibility. Transactions
effected pursuant to such combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed
for each fund or advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized
to engage broker-dealers ("brokers") which, in its best judgment based on
all relevant factors, will implement the policy of the Fund to achieve
"best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. WRIMCO need not
seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by WRIMCO to
be useful or desirable for its investment management of the Fund and/or the
other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers;
(ii) furnishing analyses and reports; or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage
services may be higher than another qualified broker would charge for
effecting comparable transactions if a good faith determination is made by
WRIMCO that the commission is reasonable in relation to the brokerage
services provided. Subject to the foregoing considerations WRIMCO may also
consider the willingness of particular brokers and dealers to sell shares
of the Fund and other funds managed by WRIMCO and its affiliates as a
factor in its selection. No allocation of brokerage or principal business
is made to provide any other benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of WRIMCO 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.
During the Fund's fiscal years ended December 31, 1995, 1994 and 1993,
the Fund paid brokerage commissions of $_____________, $69,862 and
$136,655, respectively. These figures do not include principal
transactions or spreads or concessions on principal transactions, i.e.,
those in which the Fund sells securities to a broker-dealer firm or buys
from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended December 31, 1995, the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research as well as execution totaled
$_____________ on which $____________ in brokerage commissions were paid.
These transactions were allocated to these broker-dealers by the internal
allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of
their employees, officers and interested directors.
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 or 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 February 19, 1996, the Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Each class represents an interest in the same assets of the Fund and differ
as follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class A shares
are subject to an initial sales charge and to an ongoing service fee; each
class may bear differing amounts of certain class-specific expenses; and
each class has a separate exchange privilege. The Fund does not anticipate
that there will be any conflicts between the interests of holders of the
different classes of shares of the Fund by virtue of those classes. On an
ongoing basis, the Board of Directors will consider whether any such
conflict exists and, if so, take appropriate action. Each share of the
Fund is entitled to equal voting, dividend, liquidation and redemption
rights, except that due to the differing expenses borne by the two classes,
dividends and liquidation proceeds of Class A shares are expected to be
lower than for Class Y shares of the Fund. Each fractional share of a
class has the same rights, in proportion, as a full share of that
class.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
JUNE 30, 1995
Troy
Ounces Value
BULLION
Gold* .................................. 1,401 $ 539,245
Platinum* .............................. 2,145 930,930
TOTAL BULLION - 4.16% $ 1,470,175
(Cost: $1,425,764)
Shares
COMMON STOCKS AND WARRANTS
Gold
Australia - 13.18%
Acacia Resources Limited* .............. 300,000 528,835
Gold Mines of Kalgoorlie Limited . ...... 331,660 297,037
Golden Shamrock Mines Limited* ......... 500,000 376,724
Newcrest Mining Limited* ............... 250,000 1,060,869
Normandy Mining Limited ................ 297,900 368,440
Nuigini Mining Ltd. .................... 309,900 804,010
Nuigini Mining Ltd., Warrants* ......... 77,475 79,850
Plutonic Resources Limited ............. 100,000 405,156
PosGold Limited ........................ 250,000 502,891
Ranger Minerals NL* .................... 100,000 234,564
Total ................................. 4,658,376
Canada - 13.55%
Agnico-Eagle Mines Limited ............. 45,500 602,875
Cambior Inc. ........................... 61,600 762,487
Euro-Nevada Mining Corporation Limited . 17,200 525,994
Franco-Nevada Mining Corporation Limited 11,800 614,315
Hemlo Gold Mines Inc. .................. 25,200 267,750
Prime Resources Corporation* ........... 100,000 691,714
Royal Oak Mines Inc.* .................. 100,000 312,500
TVX Gold Inc.* ......................... 139,700 1,012,825
Total ................................. 4,790,460
United States - 13.79%
Amax Gold Inc.* ........................ 60,000 330,000
Barrick Gold Corporation ............... 33,000 833,250
Battle Mountain Gold Company ........... 100,000 962,500
Coeur d'Alene Mines Corporation ........ 20,000 347,500
Hecla Mining Company* .................. 30,000 311,250
Homestake Mining Company ............... 50,000 825,000
Newmont Gold Company ................... 31,500 1,267,875
Total ................................. 4,877,375
TOTAL COMMON STOCKS AND WARRANTS - 40.52% $14,326,211
(Cost: $13,115,272)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
JUNE 30, 1995
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
5.875%, 6-30-2000 ..................... $2,000 $ 1,991,240
7.25%, 8-15-2004 ...................... 2,000 2,137,180
8.875%, 8-15-2017 ..................... 1,000 1,245,000
8.875%, 2-15-2019 ..................... 2,000 2,500,320
TOTAL UNITED STATES GOVERNMENT SECURITIES - 22.27% $ 7,873,740
(Cost: $7,289,369)
TOTAL SHORT-TERM SECURITIES
Repurchase Agreements - 14.14%
J. P. Morgan Securities, 5.75%
Repurchase Agreement dated
6-30-95, to be repurchased
at $5,002,396 on 7-3-95** ............. 5,000 $ 5,000,000
United States Government Securities - 18.93%
United States Treasury Bills:
5.9%, 7-5-95 .......................... 5,000 4,996,722
5.91%, 7-7-95 ......................... 1,700 1,698,326
Total ................................. 6,695,048
TOTAL SHORT-TERM SECURITIES - 33.07% $11,695,048
(Cost: $11,695,048)
TOTAL INVESTMENTS - 100.02% $35,365,174
(Cost: $33,525,453)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.02%) (6,400)
NET ASSETS - 100.00% $35,358,774
Notes To Schedule Of Investments
*Non-income producing.
**Collateralized by $5,044,000 U.S. Treasury Notes, 5.625% due 8-31-97,
market value and accrued interest aggregate $5,120,448.
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 GOLD & GOVERNMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
Assets
Investments -- at value (Notes 1 and 3):
Bullion (cost -- $1,425,764) .................... $ 1,470,175
Securities (cost -- $32,099,689) ................ 33,894,999
-----------
35,365,174
Cash ............................................. 3,751
Receivables:
Interest and dividends .......................... 169,208
Fund shares sold ................................ 4,866
Prepaid insurance premium ........................ 11,523
-----------
Total assets .................................. 35,554,522
-----------
Liabilities
Payable for Fund shares redeemed ................. 149,878
Accrued transfer agency and dividend disbursing .. 16,270
Accrued service fee ............................... 7,993
Accrued accounting services fee .................. 1,667
Other ............................................ 19,940
-----------
Total liabilities ............................. 195,748
-----------
Total net assets ............................. $35,358,774
===========
Net Assets
$1.00 par value capital stock, authorized --
100,000,000; shares outstanding -- 4,186,616
Capital stock ................................... $ 4,186,616
Additional paid-in capital ...................... 58,180,356
Accumulated undistributed income (loss):
Accumulated undistributed net investment income . 287,220
Accumulated net realized loss on investment
transactions .................................. (29,135,150)
Net unrealized appreciation in value of
investments at end of period .................. 1,839,732
-----------
Net assets applicable to outstanding units
of capital.................................... $35,358,774
===========
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.45
=====
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended JUNE 30, 1995
Investment Income
Income:
Interest ........................................ $ 577,119
Dividends ....................................... 105,314
----------
Total income .................................. 682,433
----------
Expenses (Note 2):
Investment management fee ....................... 126,865
Transfer agency and dividend disbursing ......... 90,856
Service fee ..................................... 30,964
Accounting services fee ......................... 10,000
Custodian fees .................................. 9,174
Audit fees ...................................... 9,056
Legal fees ...................................... 751
Other ........................................... 30,193
----------
Total expenses ................................ 307,859
----------
Net investment income ........................ 374,574
----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on bullion ..................... 2,972
Realized net gain on securities .................. 2,245,997
Realized net loss on foreign
currency transactions ........................... (5,785)
----------
Realized net gain on investments ................ 2,243,184
----------
Unrealized appreciation in value of bullion
during the period ............................... 65,228
Unrealized depreciation in value of securities
during the period ............................... (1,564,749)
----------
Unrealized depreciation in value of investments
during the period ............................. (1,499,521)
----------
Net gain on investments ...................... 743,663
----------
Net increase in net assets resulting from
operations ................................ $1,118,237
==========
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
June 30, December 31,
1995 1994
----------- -----------
Decrease in Net Assets
Operations:
Net investment income ............... $ 374,574 $ 248,353
Realized net gain on investments .... 2,243,184 3,604,960
Unrealized depreciation ............. (1,499,521)(12,222,484)
----------- -----------
Net increase (decrease) in net
assets resulting from
operations ....................... 1,118,237 (8,369,171)
----------- -----------
Dividends to shareholders from
net investment income* .............. (88,668) (249,300)
----------- -----------
Capital share transactions:
Proceeds from sale of shares
(2,416,123 and 1,361,695 shares,
respectively) ...................... 19,666,686 12,898,882
Proceeds from reinvestment of
dividends (10,588 and 28,118
shares, respectively) ............. 87,254 245,912
Payments for shares redeemed
(2,811,541 and 1,522,587 shares,
respectively) ...................... (22,846,739) (14,012,232)
----------- -----------
Net decrease in net assets
resulting from capital
share transactions ............... (3,092,799) (867,438)
----------- -----------
Total decrease ................... (2,063,230) (9,485,909)
Net Assets
Beginning of period .................. 37,422,004 46,907,913
----------- -----------
End of period, including undistributed
net investment income of $287,220 and
$7,099, respectively ................ $35,358,774 $37,422,004
=========== ===========
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
six months For the fiscal year ended December 31,
ended --------------------------------------
6/30/95 1994 1993 1992 1991 1990
---------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $8.19 $9.97 $5.70 $6.63 $6.68 $8.66
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... .09 .05 .04 .06 .15 .11
Net realized and
unrealized gain
(loss) on
investments ..... .19 (1.78) 4.27 (0.93) (0.05) (1.97)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... .28 (1.73) 4.31 (0.87) .10 (1.86)
----- ----- ----- ----- ----- -----
Less dividends from
net investment
income ........... (0.02) (0.05) (0.04) (0.06) (0.15) (0.12)
----- ----- ----- ----- ----- -----
Net asset value,
end of period ..... $8.45 $8.19 $9.97 $5.70 $6.63 $6.68
===== ===== ===== ===== ===== =====
Total return* ...... 3.42% -17.36% 75.82% -13.18% 1.47% -21.59%
Net assets, end
of period (000
omitted) .........$35,359 $37,422$46,908 $27,136$40,587 $54,371
Ratio of expenses
to average net
assets ........... 1.74%** 1.59% 1.69% 1.88% 1.57% 1.56%
Ratio of net invest-
ment income to average
net assets ....... 2.11%** 0.57% 0.48% .90% 2.11% 1.43%
Portfolio turnover
rate*** .......... 219.47%**64.89% 84.00% 61.50%112.80% 82.42%
*Total return calculated without taking into account the sales
load deducted on an initial purchase.
**Annualized.
***This rate is, in general, calculated by dividing the average
value of the Fund's portfolio securities during the period into
the lesser of its purchases or sales of securities in the period,
excluding short-term securities and bullion.
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1 -- Significant Accounting Policies
United Gold & Government Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Stocks which are traded over-the-
counter are priced using Nasdaq (National Association of Securities
Dealers Automated Quotations) which provides information on bid and
asked or closing prices quoted by major dealers in such stocks. Gold
and silver bullion are valued at the last spot settlement price for
current delivery as calculated by the Commodity Exchange, Inc. as of
the close of that Exchange. Platinum bullion is valued at the last
spot settlement price for current delivery as calculated by the New
York Mercantile Exchange as of the close of that Exchange. Securities
for which quotations are not readily available are valued as
determined in good faith in accordance with procedures established by
and under the general supervision of the Fund's Board of Directors.
Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Original issue discount (as defined in
the Internal Revenue Code), premiums 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. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income is recorded on the
accrual basis. See Note 3 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars
daily. Purchases and sales of investment securities and accruals of
income and expenses are translated at the rate of exchange prevailing
on the date of the transaction. The Fund combines fluctuations from
currency exchange rates and fluctuations in market value when
computing net realized and unrealized gain or loss from investments.
D. 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.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by the Fund on the record date. 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, foreign currency transactions, net operating
losses and expiring capital loss carryforwards.
F. 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.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee consists of two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the annual rate of .30% of
net assets and (ii) a "Group" fee computed each day on the combined net
asset values of all of the funds in the United Group of mutual funds
(approximately $12.1 billion of combined net assets at June 30, 1995) at
annual rates of .51% of the first $750 million of combined net assets, .49%
on that amount between $750 million and $1.5 billion, .47% between $1.5
billion and $2.25 billion, .45% between $2.25 billion and $3 billion, .43%
between $3 billion and $3.75 billion, .40% between $3.75 billion and $7.5
billion, .38% between $7.5 billion and $12 billion, and .36% of that amount
over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
At present, the Fund operates under state expense requirements which
limit the amount of aggregate annual expenses, adjusted for certain excess
expenses, that the Fund may incur during its fiscal year. The Manager will
reimburse the Fund for any expenses in excess of the limitation. No such
reimbursement is required for the period ended June 30, 1995.
The Fund pays WARSCO a per account charge for transfer agency and
dividend disbursement services of $1.0208 for each shareholder account
which was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution of cash or shares had a
record date in that month. The Fund also reimburses W&R and WARSCO for
certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct
and indirect gross sales commissions (which are not an expense of the Fund)
of $37,358, out of which W&R paid sales commissions of $20,144 and all
expenses in connection with the sale of Fund shares, except for
registration fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund may pay monthly a fee to W&R
in an amount not to exceed .25% of the Fund's average annual net assets.
The fee is to be paid to reimburse W&R for amounts it expends in connection
with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $667.
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 Securities Transactions
Purchases of investment securities, other than U.S. Government and
short-term securities, aggregated $14,242,612 while proceeds from
maturities and sales aggregated $26,934,038. Proceeds from the sale of
bullion aggregated $1,203,168. Purchases of short-term securities and U.S.
Government securities aggregated $694,630,392 and $16,435,156,
respectively. Proceeds from maturities and sales of short-term securities
and U.S. Government securities aggregated $691,720,000 and $9,630,156,
respectively.
For Federal income tax purposes, cost of investments owned at June 30,
1995 was $33,525,453, resulting in net unrealized appreciation of
$1,839,721, of which $2,629,542 related to appreciated securities and
$789,821 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $3,604,961 during the year ended December 31, 1994, which was
fully offset by utilization of capital loss carryforwards. Remaining prior
year capital loss carryforwards of the Fund aggregated $31,384,119 at
December 31, 1994. This amount is available to offset future realized
capital gain net income for Federal income tax purposes through December
31, 1996; $11,894,711 of this amount is available through December 31,
1997: $11,331,322 is available through December 31, 1998; $6,823,792 is
available through December 31, 1999 and $4,958,441 is available through
December 31, 2000.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Gold & Government 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
Gold & Government Fund, Inc. (the "Fund") at June 30, 1995, the results of
its operations for the six months then ended and the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of portfolio positions at June 30, 1995 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
August 4, 1995
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1994
Troy
Ounces Value
BULLION
Gold* .................................. 3,399 $ 1,302,157
Platinum* .............................. 3,142 1,302,987
TOTAL BULLION - 6.96% $ 2,605,144
(Cost: $2,625,961)
Shares
COMMON STOCKS
Gold
Australia - 8.61%
Gold Mines of Kalgoorlie Limited . ...... 1,081,660 838,287
Newcrest Mining Limited ................ 125,000 557,125
Normandy Posieden Ltd. ................. 602,100 877,260
Nuigini Mining Ltd.* ................... 309,900 948,914
Total ................................. 3,221,586
Canada - 26.95%
Agnico-Eagle Mines Limited ............. 100,000 1,052,100
Cambior Inc. ........................... 71,600 823,543
Euro-Nevada Mining Corporation Limited . 76,200 1,603,400
Franco-Nevada Mining Corporation Limited 26,800 1,316,657
International Musto Explorations Ltd.* . 200,000 980,800
Kinross Gold Corporation* .............. 162,000 837,702
Pegasus Gold Inc. ...................... 50,000 568,750
Placer Dome Inc. ....................... 50,000 1,087,500
Royal Oak Mines Inc.* .................. 100,000 325,000
TVX Gold Inc.* ......................... 219,700 1,488,687
Total ................................. 10,084,139
South Africa - 7.94%
Driefontein Consolidated Limited, ADR .. 50,000 762,500
Free State Consolidated Gold Mines
Ltd., ADR ............................. 45,000 686,250
Kloof Gold Mining Company Ltd., ADR .... 44,000 646,228
St. Helena Gold Mines Ltd., ADR ........ 20,000 195,000
Vaal Reefs Exploration & Mining Co.
Ltd., New Shares, ADR ................. 75,000 681,975
Total.................................. 2,971,953
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS (Continued)
Gold (Continued)
United States - 16.86%
Amax Gold Inc. ......................... 106,137 $ 636,822
American Barrick Resources Corporation . 50,000 1,112,500
Battle Mountain Gold Company, Class A .. 100,000 1,100,000
Canyon Resources Corporation* .......... 200,000 325,000
Homestake Mining Company ............... 55,000 941,875
Newmont Gold Company ................... 35,000 1,246,875
Santa Fe Pacific Gold Corporation* ..... 73,600 947,600
Total ................................. 6,310,672
Total Gold Securities - 60.36% 22,588,350
Metals - 3.43%
United States
Cyprus Amax Minerals Company ........... 12,500 326,563
Freeport McMoRan Copper & Gold
Inc., Class A ......................... 45,000 956,250
Total ................................. 1,282,813
Miscellaneous
Coal - 1.57%
Zeigler Coal Holding Company ........... 50,000 587,500
Multi-Industry - 2.09%
RTZ Corporation PLC (The) .............. 60,344 781,696
Total Miscellaneous Securities - 3.66% 1,369,196
TOTAL COMMON STOCKS - 67.45% $25,240,359
(Cost: $22,299,089)
PREFERRED STOCKS - 5.79%
Gold
United States
Amax Gold Inc., Series B, Convertible .. 5,000 242,500
Battle Mountain Gold Company,
Convertible ........................... 10,000 610,000
Echo Bay Finance Corp., Series A,
Convertible ........................... 40,000 1,315,000
Total ................................. $2,167,500
(Cost: $1,748,700)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1994
Principal
Amount in
Thousands Value
TOTAL SHORT-TERM SECURITIES - 23.46%
J. P. Morgan Securities, 5.2%
Repurchase Agreement dated
12-30-94, to be repurchased
at $8,785,073 on 1-3-95** ............. $8,780 $ 8,780,000
(Cost: $8,780,000)
TOTAL INVESTMENTS - 103.66% $38,793,003
(Cost: $35,453,750)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (3.66%) (1,370,999)
NET ASSETS - 100.00% $37,422,004
Notes To Schedule Of Investments
*Non-income producing.
**Collateralized by $8,509,000 U.S. Treasury Notes, 8.375% due 8-15-2008,
market value and accrued interest aggregate $8,976,906.
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 GOLD & GOVERNMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
Assets
Investments -- at value (Notes 1 and 3):
Bullion (cost -- $2,625,961) .................... $ 2,605,144
Securities (cost -- $32,827,789) ................ 36,187,859
-----------
38,793,003
Cash ............................................. 4,408
Receivables:
Interest and dividends .......................... 56,262
Fund shares sold ................................ 28,697
Prepaid insurance premium ........................ 10,646
-----------
Total assets .................................. 38,893,016
-----------
Liabilities
Payable for investment securities purchased ...... 1,146,750
Payable for Fund shares redeemed ................. 242,154
Accrued transfer agency and dividend disbursing .. 18,189
Accrued service fee ............................... 10,423
Accrued accounting services fee .................. 1,667
Other ............................................ 51,829
-----------
Total liabilities ............................. 1,471,012
-----------
Total net assets ............................. $37,422,004
===========
Net Assets
$1.00 par value capital stock, authorized --
100,000,000; shares outstanding -- 4,571,446
Capital stock ................................... $ 4,571,446
Additional paid-in capital ...................... 60,888,325
Accumulated undistributed income (loss):
Accumulated undistributed net investment income . 7,099
Accumulated net realized loss on investment
transactions transactions ..................... (31,384,119)
Net unrealized appreciation in value of
investments at end of period .................. 3,339,253
-----------
Net assets applicable to outstanding units
of capital.................................... $37,422,004
===========
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.19
Sales load (offering price x 5.75%) ................ .50
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $8.69
=====
On sales of $100,000 or more the sales load
is reduced as set forth on page .
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1994
Investment Income
Income:
Dividends ....................................... $ 576,493
Interest ........................................ 368,506
-----------
Total income .................................. 944,999
-----------
Expenses (Note 2):
Investment management fee ....................... 312,911
Transfer agency and dividend disbursing ......... 191,123
Service fee ..................................... 60,162
Custodian fees .................................. 38,572
Accounting services fee ......................... 20,000
Audit fees ...................................... 14,447
Legal fees ...................................... 3,983
Other ........................................... 55,448
-----------
Total expenses ................................ 696,646
-----------
Net investment income ........................ 248,353
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on bullion ...................... 81,381
Realized net gain on securities .................. 3,523,579
-----------
Realized net gain on investments ................ 3,604,960
-----------
Unrealized depreciation in value of bullion
during the period ............................... (184,530)
Unrealized depreciation in value of securities
during the period ............................... (12,037,954)
-----------
Unrealized depreciation in value of investments
during the period ............................. (12,222,484)
-----------
Net loss on investments ....................... (8,617,524)
-----------
Net decrease in net assets resulting from
operations ................................. $(8,369,171)
===========
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended December 31,
-----------------------
1994 1993
----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............... $ 248,353 $ 178,585
Realized net gain on investments .... 3,604,960 2,095,169
Unrealized appreciation
(depreciation) .................... (12,222,484) 17,844,721
----------- -----------
Net increase (decrease) in net
assets resulting from
operations ....................... (8,369,171) 20,118,475
----------- -----------
Dividends to shareholders from
net investment income* .............. (249,300) (188,719)
----------- -----------
Capital share transactions:
Proceeds from sale of shares
(1,361,695 and 1,720,096 shares,
respectively) ...................... 12,898,882 13,848,251
Proceeds from reinvestment of
dividends (28,118 and 23,934
shares, respectively) ............. 245,912 185,584
Payments for shares redeemed
(1,522,587 and 1,796,401 shares,
respectively) ...................... (14,012,232) (14,191,833)
----------- -----------
Net decrease in net assets
resulting from capital
share transactions ............... (867,438) (157,998)
----------- -----------
Total increase (decrease) ........ (9,485,909) 19,771,758
Net Assets
Beginning of period .................. 46,907,913 27,136,155
----------- -----------
End of period, including undistributed
net investment income of $7,099 and
$8,046, respectively ................ $37,422,004 $46,907,913
=========== ===========
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the
period
from
September
4, 1985
through
For the fiscal year ended December 31, December
------------------------------------------------------------------------------------- 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ..... $9.97 $5.70 $6.63 $6.68 $8.66 $7.47 $7.95 $6.83 $5.07 $5.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income .05 .04 .06 .15 .11 .16 .17 .14 .17 .06
Net realized and
unrealized gain
(loss) on
investments ........... (1.78) 4.27 (0.93) (0.05) (1.97) 1.20 (0.48) 1.93 1.89 .01
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations .............. (1.73) 4.31 (0.87) .10 (1.86) 1.36 (0.31) 2.07 2.06 .07
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income ..... (0.05) (0.04) (0.06) (0.15) (0.12) (0.17) (0.17) (0.13) (0.22) 0.00
Distributions from
capital gains ......... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.82) (0.08) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ....... (0.05) (0.04) (0.06) (0.15) (0.12) (0.17) (0.17) (0.95) (0.30) 0.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........... $8.19 $9.97 $5.70 $6.63 $6.68 $8.66 $7.47 $7.95 $6.83 $5.07
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ............ -17.36% 75.82% -13.18% 1.47% -21.59% 18.42% -3.92% 30.36% 41.48% 4.39%
Net assets, end of period
(000 omitted) ........... $37,422 $46,908 $27,136 $40,587 $54,371 $83,154 $99,460 $119,894 $17,695 $1,769
Ratio of expenses to average
net assets .............. 1.59% 1.69% 1.88% 1.57% 1.56% 1.42% 1.42% 1.20% 1.48% 0.48%
Ratio of net investment income
to average net assets ... 0.57% 0.48% 0.90% 2.11% 1.43% 1.91% 2.14% 1.81% 3.46% 2.17%
Portfolio turnover rate*** 64.89% 84.00% 61.50% 112.80% 82.42% 89.92% 100.19% 107.00% 159.66% 21.73%
*The Fund's inception date is February 28, 1985; however, since the Fund did not have investment activity or incur expenses
prior to the date of public offering, the per-share data and ratios are for a capital share outstanding for the period from
September 4, 1985 (initial public offering) through December 31, 1985. On an annual basis, the ratios of expenses and net
investment income to average net assets would have been approximately 1.50% and 6.77%, respectively.
**Total return calculated without taking into account the sales load deducted on an initial purchase.
***This rate is, in general, calculated by dividing the average value of the Fund's portfolio securities during the period into
the lesser of its purchases or sales of securities in the period, excluding short-term securities and bullion.
See notes to financial statements.
</TABLE>
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 -- Significant Accounting Policies
United Gold & Government Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal
period as reported by the principal securities exchange on which the
issue is traded or, if no sale is reported for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Stocks which are traded over-the-
counter are priced using NASDAQ (National Association of Securities
Dealers Automated Quotations) which provides information on bid and
asked or closing prices quoted by major dealers in such stocks. Gold
and silver bullion are valued at the last spot settlement price for
current delivery as calculated by the Commodity Exchange, Inc. as of
the close of that Exchange. Platinum bullion is valued at the last
spot settlement price as calculated by the New York Mercantile
Exchange as of the close of that Exchange. Securities for which
quotations are not readily available are valued as determined in good
faith in accordance with procedures established by and under the
general supervision of the Fund's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Original issue discount (as defined in
the Internal Revenue Code), premiums 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. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income is recorded on the
accrual basis. See Note 3 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars
daily. Purchases and sales of investment securities and accruals of
income and expenses are translated at the rate of exchange prevailing
on the date of the transaction. The Fund combines fluctuations from
currency exchange rates and fluctuations in market value when
computing net realized and unrealized gain or loss from investments.
D. 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.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by the Fund on the record date. 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, foreign currency transactions, net operating
losses and expiring capital loss carryforwards.
F. 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.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee consists of two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the annual rate of .30% of
net assets and (ii) a "Group" fee computed each day on the combined net
asset values of all of the funds in the United Group of mutual funds
(approximately $11.0 billion of combined net assets at December 31, 1994)
at annual rates of .51% of the first $750 million of combined net assets,
.49% on that amount between $750 million and $1.5 billion, .47% between
$1.5 billion and $2.25 billion, .45% between $2.25 billion and $3 billion,
.43% between $3 billion and $3.75 billion, .40% between $3.75 billion and
$7.5 billion, .38% between $7.5 billion and $12 billion, and .36% of that
amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
At present, the Fund operates under state expense requirements which
limit the amount of aggregate annual expenses, adjusted for certain excess
expenses, that the Fund may incur during its fiscal year. The Manager will
reimburse the Fund for any expenses in excess of the limitation. No such
reimbursement is required for the period ended December 31, 1994.
The Fund pays WARSCO a per account charge for transfer agency and
dividend disbursement services of $1.0208 for each shareholder account
which was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution of cash or shares had a
record date in that month. The Fund also reimburses W&R and WARSCO for
certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct
and indirect gross sales commissions (which are not an expense of the Fund)
of $153,080, out of which W&R paid sales commissions of $88,222 and all
expenses in connection with the sale of Fund shares, except for
registration fees and related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940, the Fund may pay monthly a fee to W&R
in an amount not to exceed .25% of the Fund's average annual net assets.
The fee is to be paid to reimburse W&R for amounts it expends in connection
with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $1,589.
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 Securities Transactions
Purchases of investment securities, other than U.S. Government and
short-term securities, aggregated $15,087,203 while proceeds from
maturities and sales aggregated $17,206,144. Purchases of bullion
aggregated $788,900 while proceeds from the sale of bullion aggregated
$3,931,754. Purchases of short-term securities and U.S. Government
securities aggregated $1,356,470,000 and $6,108,946, respectively.
Proceeds from maturities and sales of short-term securities and U.S.
Government securities aggregated $1,351,187,423 and $5,928,047,
respectively.
For Federal income tax purposes, cost of investments owned at December
31, 1994 was $35,453,750, resulting in net unrealized appreciation of
$3,339,253, of which $5,715,214 related to appreciated securities and
$2,375,961 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $3,604,961 during the year ended December 31, 1994, which was
fully offset by utilization of capital loss carryforwards. Remaining prior
year capital loss carryforwards of the Fund aggregated $31,384,119 at
December 31, 1994. This amount is available to offset future realized
capital gain net income for Federal income tax purposes through December
31, 1996; $11,894,711 of this amount is available through December 31,
1997: $11,331,322 is available through December 31, 1998; $6,823,792 is
available through December 31, 1999 and $4,958,441 is available through
December 31, 2000.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Gold & Government 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
Gold & Government Fund, Inc. (the "Fund") at December 31, 1994, the results
of its operations for the year then ended and the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1994 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1995
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Gold & Government Fund, Inc.
Included in Part B:
-------------------
As of December 31, 1994 and June 30, 1995
Statements of Assets and Liabilities
For the year ended December 31, 1994 and the six months ended June 30,
1995
Statements of Operations
For the two years ended December 31, 1994 and the six months ended
June 30, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1994 and June
30, 1995
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation attached hereto as EX-99.B1-ggchartr
Articles Supplementary attached hereto as EX-99.B1-ggartsup
(2) By-Laws, as amended, attached hereto as EX-99.B2-ggbylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, attached hereto as EX-99.B1-charter;
Article I, Article IV and Article VII of the Bylaws of the
Registrant attached hereto as EX-99.B2-ggbylaw
(5) Investment Management Agreement attached hereto as EX-99.B5-ggima
Assignment of Investment Management Agreement attached hereto as
EX-99.B5-ggassign
(6) Underwriting Agreement filed March 29, 1995 as EX-99.B6-ggua to
Post-Effective Amendment No. 16 to the Registration Statement on
Form N-1A*
(7) Not applicable
(8) Custodian Agreement attached hereto as EX-99.B8-ggca
(9) Shareholder Servicing Agreement attached hereto as EX-99.B9-ggssa
Accounting Services Agreement attached hereto as EX-99.B9-ggasa
Service Agreement filed August 4, 1993 as Exhibit (b)(15) to
Post-Effective Amendment No. 14 to the Registration
Statement on Form N-1A*
Amendment to Service Agreement attached hereto as EX-99.B9-ggsaa
Fund Class A Application attached hereto as EX-99.B9-ggappca
Fund NAV Application filed March 29, 1995 as EX-99.B9-ggappnav to
Post-Effective Amendment No. 16 to the Registration
Statement on Form N-1A*
Fund Class Y Application attached hereto as EX-99.B9-ggappcy
(10) Not applicable
(11) Consent of Independent Accountants attached hereto as EX-99.B11-
ggconsnt
(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.*
- ---------------------------------
*Incorporated herein by reference
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
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.*
- ---------------------------------
*Incorporated herein by reference
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 attached hereto as EX-99.B15-ggspca
(16) Schedule for computation of average annual total return
performance quotations filed August 4, 1993 as Exhibit (b)(16) to
Post-Effective Amendment No. 14 to the Registration Statement on
Form N-1A*
(17) Financial Data Schedule attached hereto as EX-27.B17-ggfds
(18) Multiple Class Plan attached hereto as EX-99.B18-ggmcp
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 November 30, 1995
-------------- ------------------------------
Capital Stock 10,483
27. Indemnification
---------------
Reference is made to Section (7)(c) of Article SEVENTH of the Articles
of Incorporation of Registrant, attached hereto as EX-99.B1-charter
and to Article IV of the Underwriting Agreement filed March 29, 1995
as EX-99.B6-ggua to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A*, both of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers,
employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
Agreement between Waddell & Reed, Inc. and the Registrant, Waddell &
Reed, Inc. is to provide investment management services to the
Registrant. Waddell & Reed, Inc. assigned its investment management
duties under this agreement to Waddell & Reed Investment Management
Company on January 8, 1992. Waddell & Reed Investment Management
Company is not engaged in any business other than the provision of
investment management services to those registered investment
companies as 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
- ---------------------------------
*Incorporated herein by reference
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 Government Securities Fund, Inc.
United New Concepts 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
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
- ---------------------------------
*Incorporated herein by reference
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B
and as listed in Part C (b)(9) of this Post-Effective Amendment and
listed in response to Item (b)(9) and (b)(15)hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to
shareholders upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if
requested in writing by the shareholders of record of not less
than 10% of the Fund's outstanding shares, to call a meeting of
the shareholders of the Fund for the purpose of voting upon the
question of removal of any director and to assist in
communications with other shareholders as required by Section
16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(a) of the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Overland Park, and
State of Kansas, on the 21st day of December, 1995.
UNITED GOLD & GOVERNMENT FUND, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been
signed below by the following persons in the capacities and on the date
indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board December 21, 1995
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director December 21, 1995
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer December 21, 1995
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and December 21, 1995
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director December 21, 1995
- ---------------------- ----------------
Henry L. Bellmon
Director
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director December 21, 1995
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director December 21, 1995
- ------------------ ----------------
Linda Graves
/s/John F. Hayes* Director December 21, 1995
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director December 21, 1995
- ------------------- ----------------
Glendon E. Johnson
/s/James B. Judd* Director December 21, 1995
- ------------------ ----------------
James B. Judd
/s/William T. Morgan* Director December 21, 1995
- ------------------- ----------------
William T. Morgan
Director
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B Schwartz* Director December 21, 1995
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel, III* Director December 21, 1995
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director December 21, 1995
- ------------------- ----------------
Paul S. Wise
Director
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
- -------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
- -------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
- -------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
- -------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
- -------------------- --------------
Henry L. Bellmon
Director
- -------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
- -------------------- --------------
Jay B. Dillingham
/s/Linda Graves Director July 12, 1995
- -------------------- --------------
Linda Graves
/s/John F. Hayes Director July 12, 1995
- -------------------- --------------
John F. Hayes
/s/Glendon E. Johnson Director July 12, 1995
- -------------------- --------------
Glendon E. Johnson
/s/James Judd Director July 12, 1995
- -------------------- --------------
James Judd
/s/William T. Morgan Director July 12, 1995
- -------------------- --------------
William T. Morgan
Director
- -------------------- --------------
Doyle Patterson
/s/Eleanor Schwartz Director July 12, 1995
- -------------------- --------------
Eleanor Schwartz
/s/Frederick Vogel III Director July 12, 1995
- -------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
- -------------------- --------------
Paul S. Wise
Director
- -------------------- --------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-ggchartr
ARTICLES OF INCORPORATION
OF
UNITED GOLD & GOVERNMENT FUND, INC.
THIS IS TO CERTIFY:
FIRST: THE UNDERSIGNED, Rodney O. McWhinney, whose post office address is
2400 Pershing Road, Kansas City, Missouri 64108, being of full legal age, does
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations, act as incorporator with the intention of forming a
corporation.
SECOND: The name of the corporation is United Gold & Government Fund, Inc.
(hereinafter called the "Corporation").
THIRD: The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, are as
follows:
(1) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase or
otherwise acquire, hold for investment or otherwise, sell, assign,
negotiate, transfer, exchange or otherwise dispose of or turn to account or
realize upon, securities (which term "securities" shall for the purposes of
these Articles of Incorporation, without limitation of the generality
thereof, be deemed to include any stocks, shares, bonds, debentures, notes,
mortgages or other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase, or subscribe
for the same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any issuer
(which term "issuer" shall for the purposes of these Articles of
Incorporation, without limitation of the generality thereof, be deemed to
include any persons, firms, associations, corporations, syndicates,
combinations, organizations, governments, or subdivisions thereof); and to
exercise as owner or holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement and enhancement in value of any
or all such securities.
(2) To issue and sell shares of its own capital stock in such amounts
and on such terms and conditions, for such purposes and for such amount or
kind of consideration (including without limitation thereto, securities)
now or hereafter permitted by the laws of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine.
(3) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its stock of any class or
series, in any manner and to the extent now or hereafter permitted by the
laws of said State and by these Articles of Incorporation.
(4) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(5) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of Maryland, as a member of, or as the
owner or holder of any stock of, or shares of interest in, any issuer, and
in connection therewith to make or enter into such deeds or contracts with
any issuers and to do such acts and things and to exercise such powers, as
a natural person could lawfully make, enter into, do or exercise.
(6) To do any and all such further acts and things and to exercise
any and all such further powers as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent, and construed as
powers as well as objects and purposes, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
FOURTH: The post office address of the place at which the principal office
of the Corporation in the State of Maryland will be located is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202.
The Corporation's resident agent is The Corporation Trust Incorporated,
whose post office address is 32 South Street, Baltimore, Maryland 21202. Said
resident agent is a corporation of the State of Maryland.
FIFTH: (1) The total number of shares of stock of all classes (which
term, as used herein shall include a class designated as a "Series" as set forth
below) which the Corporation has authority to issue is 100,000,000 shares. The
number of the shares of stock of each class is such number, if any, of shares of
unissued stock as is classified or reclassified into such class by the
Corporation's Board of Directors pursuant to the authority contained in Section
2-105 of the Maryland General Corporation Law (or any successor provision). The
par value of the shares of stock of each class is one dollar ($1.00) per share.
The aggregate par value of all the shares of all classes is $100,000,000. A
description of each class, including any preferences, conversions or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemptions is set forth below. Unless and until
the Corporation's Board of Directors classifies unissued stock into one or more
classes which are in addition to a single outstanding class, or after the Board
has reclassified issued stock of one or more classes into a single class, all
shares of stock of the Corporation shall be of a single class designated as
"Capital Stock". The Board of Directors of the Corporation may classify
unissued shares into one or more additional classes which shall, together with
the issued shares of stock of the Corporation, have such designations as the
Board shall determine (provided that such designation shall include the word
"Class"), and which shall be treated for all purposes other than as to dividends
as if all shares were shares of one class. The dividends payable to the holders
of each such class shall, subject to any applicable rule, regulation or order of
the Securities and Exchange Commission or other applicable law or regulation, be
determined by the Board and need not be individually declared but may be
declared and paid in accordance with a formula adopted by the Board. The Board
of Directors of the Corporation may in the alternative classify unissued shares
into one or more additional classes, which shall, together with the issued
shares of stock of the Corporation, have such designations as the Board may
determine (provided that such designation shall include the word "Series"), and
shall, subject to any applicable rule, regulation or order of the Securities and
Exchange Commission or other applicable law or regulation, have the following
characteristics.
(a) All consideration received by the Corporation for the issue
or sale of shares of stock of each such class, together with all
income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and
any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to the
class of shares of stock with respect to which such assets, payments,
or funds were received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled upon the
books of account of the Corporation. Such assets, income, earnings,
profits and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation thereof, any asset derived from any
reinvestment of such proceeds, in whatever form the same may be, are
herein referred to as "assets belonging to" such class.
(b) Dividends or distributions on shares of any such class of
stock, whether payable in stock or cash, shall be paid only out of
earnings, surplus or other assets belonging to such class and need not
be individually declared but may be declared and paid in accordance
with a formula adopted by the Board of Directors of the Corporation.
(c) In the event of the liquidation or dissolution of the
Corporation, shareholders of each such class shall be entitled to
receive, as a class, out of the assets of the Corporation available
for distribution to shareholders, but other than general assets not
belonging to any particular class of stock, the assets belonging to
such class; and the assets so distributable to the shareholders of any
such class shall be distributed among such shareholders in proportion
to the number of shares of such class held by them and recorded on the
books of the Corporation. In the event that there are any general
assets not belonging to any particular class of stock and available
for distribution, such distribution shall be made to the holders of
stock of all classes in proportion to the asset value of the
respective classes.
(d) The assets belonging to any such class of stock shall be
charged with the liabilities in respect to such class and shall also
be charged with its share of the general liabilities of the
Corporation, in proportion to the asset value of the respective
classes. The determination of the Board of Directors shall be
conclusive as to the amount of liabilities, including accrued expenses
and reserves, and as to the allocation of the same as to a given
class, and as to whether the same, or general assets of the
Corporation, are allocable to one or more classes. The liabilities so
allocated to a class are herein referred to as "liabilities belonging
to" such class.
(e) At all meetings of stockholders each stockholder of each
share of stock of each such class of the Corporation shall be entitled
to one vote for each share of stock irrespective of the class standing
in his name on the books of the Corporation, except that where a vote
of the holders of the shares of stock of any class, or of more than
one class, voting by class, is required by the Investment Company Act
of 1940 and/or Maryland law as to any proposal, only the holders of
such class or classes, voting by class, shall be entitled to vote upon
such proposal and the holders of any other class or classes shall not
be entitled to vote thereon. Any fractional share, if any such
fractional shares are outstanding, shall carry proportionately all the
rights of a whole share, including the right to vote and the right to
receive dividends.
(f) The provisions of paragraph (2) of this Article FIFTH
relating to voting shall apply when the Corporation has only one class
of shares outstanding or when the Corporation has more than one class
of shares outstanding but which differ only as to their dividend
rights.
(g) When the Corporation has more than one class of shares
outstanding having separate assets and liabilities: (i) the
redemption rights provided to the holders of the Corporation's shares
shall be deemed to apply only to the assets belonging to the class of
stock in question; and (ii) the net asset value per share computation
as provided for in Article SEVENTH shall be applied as if each such
class of shares were the Corporation as referred to in such
computation, but with its assets limited to the assets belonging to
such class and its liabilities limited to the liabilities belonging to
such class.
(2) At all meetings of stockholders each stockholder of the Corporation
shall be entitled to one vote for each share of stock standing in his name on
the books of the Corporation. Any fractional share, if any such fractional
shares are outstanding, shall carry proportionately all the rights of a whole
share, including the right to vote and the right to receive dividends.
(3) Each holder of the capital stock of the Corporation, upon proper
written request (including signature guarantees, if required by the Board of
Directors) to the Corporation, accompanied, when stock certificates representing
such shares are outstanding, by surrender of the appropriate stock certificate
or certificates in proper form for transfer, or any such other form as the Board
of Directors may provide, shall be entitled to require the Corporation to redeem
all or any part of the capital stock standing in the name of such holder on the
books of the Corporation, at the net asset value of such shares. The method of
computing such net asset value, the time as of which such net asset value shall
be computed and the time within which the Corporation shall make payment
therefore shall be determined as hereinafter provided in Article SEVENTH of
these Articles of Incorporation. Notwithstanding the foregoing, the right of
the holders of the capital stock of the Corporation to require the Corporation
to redeem such capital stock shall be suspended when such suspension is required
under the 1940 Act (which term the "1940 Act" shall for the purposes of these
Articles of Incorporation mean the Investment Company Act of 1940 as from time
to time amended and any rule, regulation or order thereunder) and may be
suspended when such suspension is permitted under the 1940 Act.
(4) All shares of the capital stock of the Corporation now or hereafter
authorized shall be subject to redemption and redeemable, in the sense used in
the Maryland General Corporation Law, at the redemption price for any such
shares, determined in the manner set out in these Articles of Incorporation.
The number of the authorized shares of the stock of any class of the Corporation
shall not be reduced by the number of any shares of such class redeemed or
purchased by it; shares redeemed or purchased shall be retired automatically and
shall have the status of authorized but unissued stock.
(5) Notwithstanding any provision of Maryland law requiring any action to
be taken or authorized by the affirmative vote of the holders of a majority or
other designated proportion of the shares, or to be otherwise taken or
authorized by a vote of the stockholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation.
(6) No holder of stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of the capital stock of the
Corporation which it may issue or sell (whether out of the number of shares
authorized by these Articles of Incorporation, or out of any shares of the stock
of the Corporation acquired by it after the issue thereof, or otherwise) other
than such right, if any, as the Board of Directors, in its discretion, may
determine.
(7) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of these Articles of Incorporation.
SIXTH: The number of Directors of the Corporation shall be twelve and the
names of those who shall act as such until the first annual meeting or until
their successors are duly chosen and qualified are as follows:
Henry L. Bellmon Ira L. Burleson
Benjamin C. Korschot John A. Kroh
Wallace F. Bennett Doyle Patterson
Dodds I. Buchanan Frederick Vogel III
Jay B. Dillingham William T. Morgan
Glendon E. Johnson Leslie S. Wright
However, the By-Laws of the Corporation may fix the number of Directors at
a number greater or less than that named in these Articles of Incorporation and
may authorize the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of Directors fixed by
these Articles of Incorporation or by the By-Laws within a limit specified in
the By-Laws, provided that in no case shall the number of Directors be less than
three, and to fill the vacancies created by any such increase in the number of
Directors. Unless otherwise provided by the By-Laws of the Corporation, the
Directors of the Corporation need not be stockholders therein.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining and regulating the powers of the Corporation and of the Directors and
stockholders.
(1) The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but not class shall be elected for a period shorter than that from
the time of the election following the division into classes until the next
annual meeting and thereafter for a period shorter than the interval
between annual meetings or for a period longer than five years, and the
term of office of at least one class shall expire each year.
Notwithstanding the foregoing, no such division into classes shall be made
prior to the first annual meeting of stockholders of the Corporation.
(2) The holders of shares of the Corporation shall have only such
rights to inspect the records, documents, accounts and books of the
Corporation as are provided by Maryland law, subject to reasonable
regulations of the Board of Directors, not contrary to Maryland law, as to
whether and to what extent, and at which times and places, and under what
conditions and regulations such rights shall be exercised.
(3) Any officer elected or appointed by the Board of Directors or by
any committee of said Board or by the stockholders or otherwise, may be
removed at any time with or without cause, in such lawful manner as may be
provided in the By-Laws of the Corporation. A Director may be removed only
as permitted by Maryland laws.
(4) If the By-Laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from
time to time be designated by them.
(5) In addition to the powers and authority herein by statute
expressly conferred upon them, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws
of Maryland, of these Articles of Incorporation and of the By-Laws of the
Corporation.
(6) Shares of stock in other corporations shall be voted by the
President or a Vice President, or such officer or officers of the
Corporation or such other person or persons as the Board of Directors shall
designate for the purpose, or by a proxy or proxies thereunto duly
authorized by the Board of Directors, except as otherwise ordered by vote
of the holders of a majority of the shares of the capital stock of the
Corporation outstanding and entitled to vote in respect thereto.
(7) (a) Subject to the provisions of the 1940 Act, any director,
officer or employee individually, or any partnership of which any director,
officer or employee may be a member, or any corporation or association of
which any director, officer or employee may be an officer, director,
trustee, employee or stockholder, may be a party to, or may be pecuniarily
or otherwise interested in, any contract or transaction of the Corporation,
and in the absence of fraud no contract or other transaction shall be
thereby affected or invalidated; provided that in case a director, or a
partnership, corporation or association of which a director is a member,
officer, director, trustee, employee or stockholder is so interested, such
fact shall be disclosed or shall have been known to the Board of Directors,
or a majority thereof; and any director of the Corporation who is so
interested, or who is also a director, officer, trustee, employee or
stockholder of such other corporation or association or a member of such
partnership which is so interested, may be counted in determining the
existence of a quorum at any meeting of the Board of Directors of the
Corporation which shall authorize any such contract or transaction, and may
vote thereat to authorize any such contract or transaction, with like force
and effect as if he were not such director, officer, trustee, employee or
stockholder of such other corporation or association or not so interested
or a member of a partnership so interested.
(b) Specifically, but without limitation of the foregoing, the
Corporation may enter into a management or investment advisory contract or
underwriting contract and other contracts with, and may otherwise do
business with any manager or investment adviser for the Corporation and/or
principal underwriter of the Corporation or any subsidiary or affiliate of
any such manager or investment adviser and/or principal underwriter and may
permit any such firm or corporation to enter into any contracts or other
arrangements with any other firm or corporation relating to the Corporation
notwithstanding that the Board of Directors of the Corporation may be
composed in part of partners, directors, officers or employees of any such
firm or corporation, and officers of the Corporation may have been or may
be or become partners, directors, officers or employees of any such firm or
corporation, and it the absence of fraud the Corporation and any such firm
or corporation may deal freely with each other, and no such contract or
transaction between the Corporation and any such firm or corporation shall
be invalidated or in any wise affected thereby, nor shall any director or
officer of the Corporation be liable to the Corporation or to any
stockholder or creditor thereof or to any other persons for any loss
incurred by it or him solely because of the existence of any such contract
or transaction; provided that nothing herein shall protect any director or
officer of the Corporation against any liability to the Corporation or to
its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
(c)(1) As used in this subparagraph (c) of this paragraph (7) of this
Article SEVENTH, the following terms shall have the meanings set forth
below:
(i) the term "indemnitee" shall mean any present or former director,
officer or employee of the Corporation (which term as used in this
paragraph (7) shall include a "Corporation" as defined in Section 2-
418(A)(2) of the Maryland General Corporation Law) and any person who while
a director, officer or employee of the corporation is or was serving at the
request of the Corporation as a director, officer, partner, trustee or
employee or agent of another Corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan, any present or former
investment adviser of the Corporation and the heirs, executors,
administrators and successors of any of the foregoing; however, whenever
conduct by an indemnitee is referred to, the conduct shall be that of the
original indemnitee rather than that of the heir, executor, administrator
or successor;
(ii) the term "covered proceeding" shall mean any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was a party
or is threatened to be made a party by reason of the fact or facts under
which he is an indemnitee as defined above;
(iii) the term "disabling conduct" shall mean willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
the conduct of the office in question and, in the case of a director or
former director of the Corporation, failure to meet the standard of conduct
set forth in Section
2-418(B)(1) of the Maryland General Corporation Law;
(iv) the term "covered expenses" shall mean judgments, penalties,
fines, settlements and reasonable expenses (including attorneys' fees)
actually incurred by an indemnitee in connection with a covered proceeding;
and
(v) the term "adjudication of liability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse determination as to
the indemnitee whether by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent.
(2) The Corporation shall not indemnify any indemnitee for any covered
expenses in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of disabling
conduct.
(3) Except as set forth in (2) above or except as limited in Section 2-
418(B) or 2-418(C) of the Maryland General Corporation Law, the Corporation
shall indemnify any indemnitee for covered expenses in any covered proceeding,
whether or not there is an adjudication of liability as to such indemnitee if a
determination has been made that indemnification is permissible since the
indemnitee was not liable by reason of disabling conduct by (i) a final decision
on the merits of the court or other body before which the covered proceeding was
brought; or (ii) in the absence of such decision, a reasonable determination,
based on a review of the facts, by either (a) the vote of a majority of a quorum
of directors who are neither "interested persons," as defined in the 1940 Act
nor parties to the covered proceeding or (b) any independent legal counsel in a
written opinion, such legal counsel to be selected in the manner set forth in
Section 2-418(E)(II) of the Maryland General Corporation Law; in voting on such
matter, or in giving such opinion, such directors or counsel may consider that
the dismissal of a covered proceeding against an indemnitee for insufficiency of
evidence of any disabling conduct with which the indemnitee has been charged
would provide reasonable assurance that the indemnitee was not liable by reason
of disabling conduct. In the event such determination is made by legal counsel,
authorization of indemnification and determination as to reasonableness of
expenses shall be made as provided in Section 2-418(E) of the Maryland General
Corporation Law.
(4) Covered expenses incurred by an indemnitee in connection with a
covered proceeding shall be advanced by the Corporation to an indemnitee prior
to the final disposition of a covered proceeding upon the request of the
indemnitee for which such advance, the written affirmation required by Section
2-418(F)(1)(I) of the Maryland General Corporation Law and the written
undertaking by or on behalf of the indemnitee to repay the advance unless it is
ultimately determined that the indemnitee is entitled to indemnification
hereunder, but only if one or more of the following is the case; (i) the
indemnitee shall provide security for such undertaking; (ii) the Corporation
shall be insured against losses arising out of any lawful advances; or (iii)
there shall have been a determination, based on a review of the readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that the indemnitee ultimately will be found entitled to
indemnification and that such facts would not preclude indemnification under
Section 2-418 of the Maryland General Corporation Law by either independent
legal counsel (selected as set forth in (3) above) in a written opinion or by
the vote of a majority of a quorum of directors who are neither interested
persons as defined in the 1940 Act nor parties to the covered proceeding. In
the event such determination is made by legal counsel, authorization of the
advance and determination of reasonableness of expenses shall be made as
provided in Section 2-418(E) of the Maryland General Corporation Law.
(5) Nothing herein shall be deemed to affect the right of the Corporation
and/or any indemnitee to acquire and pay for any insurance covering any or all
indemnitees to the extent permitted by the 1940 Act or to affect any other
indemnification rights to which any indemnitee may be entitled to the extent
permitted by the 1940 Act.
(8) The computation of net asset value of each share of capital stock, as
in these Articles of Incorporation referred to, shall be determined as provided
in the 1940 Act, and, except as so provided shall be computed in accordance with
the following rules:
(a) The net asset value of each share of stock of the Corporation
tendered to the Corporation for redemption shall be determined as of the
close of business on the New York Stock Exchange or the close of any
securities exchange or commodities exchange on which an option or futures
contract held by the corporation is traded, next succeeding the tender of
such share;
(b) The net asset value of each share of stock of the Corporation for
the purpose of the issue of such share shall be determined as of the close
of the New York Stock Exchange next succeeding the receipt of an order to
purchase such share;
(c) The net asset value of each share of stock of the Corporation,
shall be the quotient obtained by dividing the value, as at the last close
of business referenced in subparagraph 8(a), of the net assets of the
Corporation (i.e., the value of the assets of the Corporation less the
liabilities of the Corporation exclusive of the par value of its shares and
surplus) by the total number of shares of stock of the Corporation
outstanding at such close. The assets and liabilities of the Corporation
shall be determined in accordance with generally accepted accounting
principles; provided, however, that in determining the liabilities, there
shall be included such reserves for taxes or contingent liabilities as may
be authorized or approved by the Board of Directors, and provided further
that in determining the value of the assets of the Corporation for the
purpose of obtaining the net asset value, each security listed on the New
York Stock Exchange shall be valued on the basis of the closing sale
thereof on the New York Stock Exchange on the business day as of which such
value is being determined; if there be no sale on such day, then the
security shall be valued on the basis of the mean between closing bid and
asked prices on such day; if no bid and asked prices are quoted for such
day, then the security shall be valued by such method as the Board of
Directors shall deem in good faith to reflect its fair market value;
securities not listed on the New York Stock Exchange shall be valued in
like manner on the basis of quotations on any other stock exchange which
the Board of Directors may from time to time approve for that purpose;
readily marketable securities traded in the over-the-counter market shall
be valued at the mean between their bid and asked prices, or, if the Board
of Directors shall so determine, at their bid prices; and all other
securities and other assets of the Corporation and all securities as to
which the Corporation might be considered an "underwriter" (as that term is
used in the Securities Act of 1933), whether or not such securities are
listed or traded in the over-the-counter market, shall be valued by such
method as they shall deem in good faith to reflect their fair market value.
In connection with the accrual of any fee or refund payable to or by an
investment adviser of the Corporation, the amount of which accrual is not
definitely determinable as of any time at which the net asset value of each
share of the capital stock of the Corporation is being determined due to
the contingent nature of such fee or refund, the Board of Directors is
authorized to establish from time to time formulae for such accrual, on the
basis of the contingencies in question to the date of such determination,
or on such other basis as the Board of Directors may establish.
For the purposes hereof:
(A) Shares of stock to be issued shall be deemed to be
outstanding as of the time of the determination of the net asset value
per share applicable to such issuance and the net price thereof shall
be deemed to be an asset of the Corporation.
(B) Shares of stock to be redeemed by the Corporation shall be
deemed to be outstanding until the time of the determination of the
net asset value applicable to such redemption and thereupon and until
paid the redemption price thereof shall be deemed to be a liability of
the Corporation.
(d) The net asset value of each share of capital stock of the
Corporation, as of any time other than the close of business on the New
York Stock Exchange on any day, may be determined by applying to the net
asset value as of the close of business on that Exchange on the preceding
business day, computed as provided in paragraph 7(c) of this Article
SEVENTH, such adjustments as are authorized by or pursuant to the direction
of the Board of Directors and designed reasonably to reflect any material
changes in the market value of securities and other assets of the
Corporation and any other material changes in the assets or liabilities of
the Corporation and in the number of its outstanding shares which shall
have taken place since the close of business on such preceding business
day.
(e) In addition to the foregoing, the Board of Directors is
empowered, in its absolute discretion, to establish other bases or times,
or both, for determining the net asset value of each share of stock of the
Corporation in accordance with the 1940 Act and to authorize the voluntary
purchase by the Corporation, either directly or through an agent, of shares
of capital stock of the Corporation upon such terms and conditions and for
such consideration as the Board of Directors shall deem advisable in
accordance with the 1940 Act. Without limiting the generality of the
foregoing, the Board of Directors may authorize the payment of dividends on
each day, the amounts of which are designed to reflect all income and
expenses and all realized and unrealized capital gains and losses, to the
end that the net asset value per share remains fixed, unless and until the
Board of Directors elects to change such dividend policy.
(f) Payment of the net asset value of shares of capital stock of the
Corporation properly surrendered to it for redemption shall be made by the
Corporation within seven days after tender of such stock to the Corporation
for such purpose plus any period of time during which the right of the
holders of the shares of capital stock of the Corporation to require the
Corporation to redeem such capital stock has been suspended. Any such
payment may be made in portfolio securities of the Corporation and/or in
cash, as the Board of Directors shall deem advisable, and no shareholder
shall have a right, other than as determined by the Board of Directors, to
have his shares redeemed in kind.
(g) The Board of Directors is empowered to cause the redemption of
the shares held in any account if the aggregate net asset value of such
shares (taken at cost or value, as determined by the Board) is less than
$500, or such lesser amount as the Board may fix, upon such notice to the
shareholders in question, with such permission to increase the investment
in question and upon such other terms and conditions as may be fixed by the
Board of Directors in accordance with the 1940 Act.
(h) In the event that any person advances the organizational expenses
of the Corporation, such advances shall become an obligation of the
Corporation subject to such terms and conditions as may be fixed by, and on
a date fixed by, or determined in accordance with criteria fixed by the
Board of Directors, to be amortized over a period or periods to be fixed by
the Board.
(i) Whenever any action is taken under these Articles of
Incorporation under any authorization to take action which is permitted by
the 1940 Act, such action shall be deemed to have been properly taken if
such action is in accordance with the construction of the 1940 Act then in
effect as expressed in "no action" letters of the staff of the Securities
and Exchange Commission or any release, rule, regulation or order under the
1940 Act or any decision of a court of competent jurisdiction
notwithstanding that any of the foregoing shall later be found to be
invalid or otherwise reversed or modified by any of the foregoing.
(j) Any action which may be taken by the Board of Directors of the
Corporation under these Articles of Incorporation may be taken by the
description thereof in the then effective prospectus relating to the
Corporation's shares under the Securities Act of 1933 rather than by formal
resolution of the Board.
(k) Whenever under these Articles of Incorporation, the Board of
Directors of the Corporation is permitted or required to place a value on
assets of the Corporation, such action may be delegated by the Board,
and/or determined in accordance with a formula determined by the Board, to
the extent permitted by the 1940 Act.
(9) Subject to the provisions of the 1940 Act, the Corporation may borrow
from banks for the purpose of obtaining funds for investment purposes or for
temporary or emergency purposes and mortgage or pledge assets of the Corporation
in connection therewith.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed upon the vote of the holders
of a majority of the shares of capital stock of the Corporation outstanding and
entitled to vote, and other provisions which might under the statutes of the
State of Maryland at the time in force be lawfully contained in articles of
incorporation, may be added or inserted upon such a vote and all rights at any
time conferred upon the stockholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article EIGHTH.
The term "these Articles of Incorporation" as used herein and in the By-
Laws of the Corporation shall be deemed to mean these Articles of Incorporation
as from time to time amended and restated.
IN WITNESS WHEREOF, the undersigned incorporator of United Gold &
Government Fund, Inc., who executed the foregoing Articles of Incorporation
hereby acknowledges the same to be his act and further acknowledges that, to the
best of his knowledge, information and belief the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
Dated the 26th day of February, 1985.
/s/Rodney O. McWhinney
Rodney O. McWhinney
STATE OF MISSOURI )
)ss.
COUNTY OF JACKSON )
This is to certify that on this 26th day of February, 1985, before me, the
subscriber, a Notary Public of the State of Missouri, personally appeared Rodney
O. McWhinney and acknowledged the foregoing Articles of Incorporation to be his
act.
Witness my hand and Notarial Seal the day and year last above written.
(SEAL) /s/Sharon K. Amerine
Sharon K. Amerine, Notary
Public
My Commission Expires: 8/21/86
EX-99.B1-ggartsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
UNITED GOLD & GOVERNMENT FUND, INC.
United Gold & Government Fund, Inc. (the "Corporation"), a Maryland
corporation, having its principal office in Baltimore, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at One
Hundred Million (100,000,000) shares of capital stock, (par value $1.00 per
share), amounting in the aggregate to a par value of One Hundred Million
Dollars ($100,000,000.00). All authorized shares that have not been designated
or classified remain available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of the
Corporation among the classes of the Corporation as follows:
Class A (50,000,000 shares)
Class Y (50,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at One Hundred Million (100,000,000) shares of capital stock, the par
value remains $1.00 per share, and the aggregate value of all authorized stock
remains One Hundred Million Dollars ($100,000,000.00).
THIRD: The capital stock of the Corporation is divided into classes and
there are no changes in the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shares of capital stock as set forth in the
Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of Class A shares shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The capital stock of the Class Y shares shall not be subject to
either a front-end or contingent deferred sales charge or Rule 12b-
1 fees and is subject to a shareholder servicing fee which differs
from that of the Class A shares.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
___ day of _________, 1996
__________________________
Sharon K. Pappas, Vice President
Attest: _________________
Sheryl Strauss
Assistant Secretary
The undersigned, Vice President of United Gold & Government Fund, Inc. who
executed on behalf said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the act
of said Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
UNITED GOLD & GOVERNMENT
FUND, INC.
By:
Sharon K. Pappas, Vice President
EX-99.B2-ggbylaw
UNITED GOLD & GOVERNMENT FUND, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called at by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give High
Income, with sufficient surety to the Corporation and the transfer agent, if
any, to indemnify it and such transfer agent against any and all loss or claims
which may arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank of trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
EX-99.B5-ggima
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of August, 1990, by and between UNITED GOLD &
GOVERNMENT FUND, INC. (hereinafter called "United"), and WADDELL & REED, INC.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed, Inc., agrees to act as investment adviser to United with
respect to the investment of its assets and in general to supervise the
investments of United, subject at all times to the direction and control of the
Board of Directors of United, all as more fully set forth herein.
II. Duties of Waddell & Reed, Inc., with respect to investment of assets of
United
A. Waddell & Reed Inc., shall regularly provide investment
advice to United and shall, subject to the succeeding provisions of this
section, continuously supervise the investment and reinvestment of cash,
securities or other property comprising the assets of the investment portfolios
of United; and in furtherance thereof, Waddell & Reed, Inc., shall:
1. obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or one or more of the
portfolios of United, and whether concerning the individual companies whose
securities are included in United's portfolios or the industries in which they
engage, or with respect to securities which Waddell & Reed, Inc., considers
desirable for inclusion in United's portfolios;
2. furnish continuously an investment program for each of the portfolios
of United;
3. determine what securities shall be purchased or sold by United;
4. take, on behalf of United, all actions which appear to Waddell & Reed,
Inc., necessary to carry into effect such investment programs and supervisory
functions as aforesaid, including the placing of purchase and sale orders.
B. Waddell & Reed, Inc., shall make appropriate and regular reports to the
Board of Directors of United on the actions it takes pursuant to Section II.A.
above. Any investment programs furnished by Waddell & Reed, Inc., under this
section, or any supervisory function taken hereunder by Waddell & Reed, Inc.,
shall at all times conform to and be in accordance with any requirements imposed
by:
1. the provisions of the Investment Company Act of 1940 and any rules or
regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of United as amended
from time to time;
4. the provisions of the Bylaws of United as amended from time to time;
5. the terms of the registration statements of United, as amended from
time to time, under the Securities Act of 1933 and the Investment Company Act of
1940.
C. Any investment programs furnished by Waddell & Reed, Inc., under this
section or any supervisory functions taken hereunder by Waddell & Reed, Inc.,
shall at all times be subject to any directions of the Board of Directors of
United, its Executive Committee, or any committee or officer of United acting
pursuant to authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of United and the expenses of Waddell & Reed, Inc., in
performing its functions under this Agreement shall be divided into two classes,
to wit:
(i) those expenses which will be paid in full by Waddell & Reed, Inc., as
set forth in subparagraph "A" hereof, and (ii) those expenses which will be paid
in full by United, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed, Inc., under Section II
above, it shall pay in full, except as to the brokerage and research services
acquired through the allocation of commissions as provided in Section IV
hereinafter, for (a) the salaries and employment benefits of all employees of
Waddell & Reed, Inc. who are engaged in providing these advisory services; (b)
adequate office space and suitable office equipment for such employees; and (c)
all telephone and communications costs relating to such functions. In addition,
Waddell & Reed, Inc., shall pay the fees and expenses of all directors of United
who are affiliated with Waddell & Reed, Inc., or an affiliated corporation and
the salaries and employment benefits of all officers of United who are
affiliated persons of Waddell & Reed, Inc.
B. United shall pay in full for all of its expenses which are not listed
above (other than those assumed by Waddell & Reed, Inc., or its affiliates in
its capacity as Accounting Services Agent for United), including (a) the costs
of preparing and printing prospectuses and reports to shareholders of United
including mailing costs; (b) the costs of printing all proxy statements and all
other costs and expenses of meetings of shareholders of United; (c) interest,
taxes, brokerage commission and premiums on fidelity and other insurance; (d)
audit fees and expenses of independent accountants and legal fees and expenses
of attorneys, but not of attorneys who are employees of Waddell & Reed, Inc.;
(e) fees and expenses of its directors not affiliated with Waddell & Reed, Inc.;
(f) custodian fees and expenses; (g) fees payable by United under the Securities
Act of 1933, the Investment Company Act of 1940, and the securities or "Blue-
Sky" laws of any jurisdiction; (h) fees and assessments of the Investment
Company Institute or any successor organization; (i) such non recurring or
extraordinary expenses as may arise, including litigation affecting United and
any indemnification by United of its officers, directors, employees and agents
with respect thereto; (j) the costs and expenses provided for in any Shareholder
Servicing Agreement or Accounting Services Agreement, including amendments
thereto, contemplated by subsection C of this section III. In the event that
any of the foregoing shall, in the first instance, be paid by Waddell & Reed,
Inc., United shall pay the same to Waddell & Reed, Inc., on presentation of a
statement with respect thereto.
C. Waddell & Reed, Inc., or an affiliate of Waddell & Reed, Inc., may also
act as (i) transfer agent or shareholder servicing agent of United and/or as
(ii) accounting services agent of United if at the time in question there is a
separate agreement, "Shareholder Servicing Agreement" and/or "Accounting
Services Agreement," covering such functions between United and Waddell & Reed,
Inc., or such affiliate. The corporation, whether Waddell & Reed, Inc., or its
affiliate, which is the party to such Agreement with United is referred to as
the "Agent." Each such Agreement shall provide in substance that it shall not
go into effect, or may be amended, or a new agreement covering the same topics
between United and the Agent may be entered into only if the terms of such
Agreement, such amendment or such new agreement have been approved by the Board
of Directors of United, including the vote of a majority of the directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
of either party to the Agreement, such amendment or such new agreement
(considering Waddell & Reed, Inc., to be such a party even if at the time in
question the Agent is an affiliate of Waddell & Reed, Inc.), cast in person at a
meeting called for the purpose of voting on such approval. Such a vote is
referred to as a "disinterested director" vote. Each such Agreement shall also
provide in substance for its continuance, unless terminated, for a specified
period which shall not exceed two years from the date of its execution and from
year to year thereafter only if such continuance is specifically approved at
least annually by a disinterested director vote, and that any disinterested
director vote shall include a determination that (i) the Agreement, amendment,
new agreement or continuance in question is in the best interests of United and
its shareholders; (ii) the services to be performed under the Agreement, the
Agreement as amended, new agreement or agreement to be continued are services
required for the operation of United; (iii) the Agent can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) the fees for such services are
fair and reasonable in light of the usual and customary charges made by others
for services of the same nature and quality. Any such Agreement may also
provide in substance that any disinterested director vote may be conditioned on
the favorable vote of the holders of a majority (as defined in or under the
Investment Company Act of 1940) of the outstanding shares of each class of
United. Any such Agreement shall also provide in substance that it may be
terminated by the Agent at any time without penalty upon giving United one
hundred twenty (120) days' written notice (which notice may be waived by United)
and may be terminated by United at any time without penalty upon giving the
Agent sixty (60) days' written notice (which notice may be waived by the Agent),
provided that such termination by United shall be directed or approved by the
vote of a majority of the Board of Directors of United in office at the time or
by the vote of the holders of a majority (as defined in or under the Investment
Company Act of 1940) of the outstanding shares of each class of United.
IV. Brokerage
(a) Waddell & Reed, Inc., may select brokers to effect the portfolio
transactions of United on the basis of its estimate of their ability to obtain,
for reasonable and competitive commissions, the best execution of particular and
related portfolio transactions. For this purpose, "best execution" means prompt
and reliable execution at the most favorable price obtainable. Such brokers may
be selected on the basis of all relevant factors including the execution
capabilities required by the transaction or transactions, the importance of
speed, efficiency, or confidentiality, and the willingness of the broker to
provide useful or desirable investment research and/or special execution
services. Waddell & Reed, Inc., shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed, Inc., shall have discretion,
in the interest of United, to direct the execution of its portfolio transactions
to brokers who provide brokerage and/or research services (as such services are
defined in Section 28(e) of the Securities Exchange Act of 1934) for United
and/or other accounts for which Waddell & Reed, Inc., and its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed, Inc., determines, in good faith, that such
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such broker, viewed in terms of either that
particular transaction or the overall responsibilities of Waddell & Reed, Inc.,
and its investment advisory affiliates with respect to the accounts for which
they exercise investment discretion. In reaching such determination, Waddell &
Reed, Inc., will not be required to attempt to place a specified dollar amount
on the brokerage and/or research services provided by such broker; provided that
Waddell & Reed, Inc., shall be prepared to demonstrate that such determinations
were made in good faith, and that all commissions paid by United over a
representative period selected by its Board of Directors were reasonable in
relation to the benefits to United.
(c) Subject to the foregoing provisions of this Paragraph "IV," Waddell &
Reed, Inc., may also consider sales of insurance policies funded by United's
shares and sales of shares of investment companies distributed by Waddell &
Reed, Inc., or its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed, Inc.
As compensation in full for services rendered and for the facilities and
personnel furnished under sections I, II, and IV of this Agreement, United will
pay to Waddell & Reed, Inc., for each day the fees specified in Exhibit A
hereto.
The amounts payable to Waddell & Reed, Inc., shall be determined as of the
close of business each day; shall, except as set forth below, be based upon the
value of net assets computed in accordance with the Articles of Incorporation of
United; and shall be paid in arrears whenever requested by Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or policies of any
state in which shares of United are qualified for sale limit the operation and
management expenses of United, Waddell & Reed, Inc., will refund to United the
amount by which such expenses exceed the lowest of such state limitations.
VI. Undertakings of Waddell & Reed, Inc.; Liabilities
Waddell & Reed, Inc., shall give to United the benefit of its best
judgment, efforts and facilities in rendering advisory services hereunder.
Waddell & Reed, Inc., shall at all times be guided by and be subject to
United's investment policies, the provisions of its Articles of Incorporation
and Bylaws as each shall from time to time be amended, and to the decision and
determination of United's Board of Directors.
This Agreement shall be performed in accordance with the requirements of
the Investment Company Act of 1940, the Investment Advisers Act of 1940, the
Securities Act of 1933, and the Securities Exchange Act of 1934, to the extent
that the subject matter of this Agreement is within the purview of such Acts.
Insofar as applicable to Waddell & Reed, Inc., as an investment adviser and
affiliated person of United, Waddell & Reed, Inc., shall comply with the
provisions of the Investment Company Act of 1940, the Investment Advisers Act of
1940 and the respective rules and regulations of the Securities and Exchange
Commission thereunder.
In the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of obligations or duties hereunder on the part of Waddell &
Reed, Inc., it shall not be subject to liability to United or to any stockholder
of United (direct or beneficial) for any act or omission in the course of or
connected with rendering services thereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of business on the date
hereof and shall continue in effect, unless terminated as hereinafter provided,
for a period of one year and from year-to-year thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to this Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) of any such party, cast in person at a meeting called for the
purpose of voting on such approval, or by the vote of the holders of a majority
(as so defined) of the outstanding voting securities of each class of United and
by the vote of a majority of the directors who are not parties to this Agreement
or "interested persons" (as so defined) of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed, Inc., at any time
without penalty upon giving United one hundred twenty (120) days' written notice
(which notice may be waived by United) and may be terminated by United at any
time without penalty upon giving Waddell & Reed, Inc. sixty (60) days' written
notice (which notice may be waived by Waddell & Reed, Inc.), provided that such
termination by United shall be directed or approved by the vote of a majority of
the Board of Directors of United in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of United. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) UNITED GOLD & GOVERNMENT FUND, INC.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
Vice President
ATTEST:
/s/Sharon K. Pappas
- ---------------------
Sharon K. Pappas, Secretary
(Seal) WADDELL & REED, INC.
By:/s/Robert L. Hechler
-----------------------
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
- -----------------------
Rodney O. McWhinney, Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED GOLD & GOVERNMENT FUND, INC.
FEE SCHEDULE
A cash fee consisting of two elements:
1. A "specific" fee computed each day on net asset value at the annual
rate of .30 of 1% of net assets; and
2. A pro rata participation based on the relative net asset size of United
in a "Group" fee computed each day on the combined net asset values of all the
Funds in the United Group listed hereafter at the annual rates shown in the
following table:
Group Fee Rate
Group Net Asset Level Annual Group Fee
(all dollars in millions) Rate For Each Level
------------------------- --------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Determined as of the close of business that day or, if not a business day, as of
the close of business the first business day preceding.
The Funds in the United Group are:
United Funds, Inc.
United High Income Fund
United Income Fund
United Accumulative Fund
United Science & Technology Fund
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
United Gold & Government Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc.
United Asset Strategy Fund, Inc.
and such other funds for which Waddell & Reed, Inc., may now or hereafter act as
investment adviser, provided that the parties to this Agreement expressly agree
in writing that such fund shall be included in the present United Group for the
purpose of determining the group fee rate.
EX-99.B5-ggassign
Assignment
Waddell & Reed, Inc. ("W&R") does hereby assign, transfer and convey, and United
Gold & Government Fund, Inc. ("Fund") does hereby consent to the assignment,
transfer and conveyance of, effective January 8, 1992, the Investment Management
Agreement between W&R and the Fund, dated August l, 1990, to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of W&R. W&R
has provided certain undertakings, agreements and guarantees in connection with
this assignment as provided in the Guarantee of Performance attached hereto as
Exhibit A.
Executed this 8th day of January, 1992.
Waddell & Reed, Inc.
By: William T. Morgan
William T. Morgan, President
United Gold & Government Fund, Inc.
By William T. Morgan
William T. Morgan, President
Accepted:
Waddell & Reed Investment Management Company
By Rodney O. McWhinney
Rodney O. McWhinney, Sr. Vice President
Guarantee of Performance
In consideration of each of the Funds' listed in Exhibit A hereto consent to the
assignment by Waddell & Reed, Inc., of the Investment Management Agreement
between Waddell & Reed, Inc., and the particular Fund to Waddell & Reed
Investment Management Company ("WRIMCO"), a wholly owned subsidiary of Waddell &
Reed, Inc., Waddell & Reed, Inc. hereby undertakes and agrees that at all times
WRIMCO shall be staffed and adequately supported to assure that WRIMCO is fully
capable of carrying out any and all of its obligations, duties and
responsibilities under the Investment Management Agreements assigned to it and
hereby further guarantees that WRIMCO shall perform its obligations, duties and
responsibilities in accordance with the terms of the several Investment
Management Agreements and in accordance with all applicable Federal laws and
regulations.
Dated this 11th day of December, 1991.
Waddell & Reed, Inc.
By: Rodney O. McWhinney
Rodney O. McWhinney
Senior Vice President
<PAGE>
EXHIBIT A
United Funds, Inc.
United High Income Fund
United Income Fund
United Accumulative Fund
United Science & Energy Fund
United Gold & Government Fund, Inc.
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United Vanguard Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Retirement Shares, Inc.
United High Income Fund II, Inc.
United High Income Fund, Inc.
United Gold & Government Fund, Inc.
United Continental Income Fund, Inc.
United International Growth Fund, Inc.
TMK/United Funds, Inc.
High Income Portfolio
Growth Portfolio]
High Income Portfolio
Income Portfolio
Money Market Portfolio
<PAGE>
EX-99.B8-ggca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Between
UNITED MISSOURI BANK, n.a.
and
UNITED GOLD & GOVERNMENT FUND, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United Gold &
Government Fund, Inc. (the "Fund") and United Missouri Bank, n.a. (the
"Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right of
set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the Custodian
shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an approved Foreign
Sub-Subcustodian in such country; and upon the receipt of Special Instructions,
the Custodian shall, or shall cause the Domestic Subcustodian to, appoint or
approve any Person (as hereinafter defined) designated by the Fund in such
Special Instructions, to hold such security or other Asset. (Any Person
appointed or approved as a sub-subcustodian pursuant to this Section 4.02(b) is
hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to open-
end management investment companies under the provisions of the 1940 Act; and
(ii) the execution, delivery and performance by the Custodian of this Agreement
are (w) within its power (x) have been duly authorized by all necessary action,
and (y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
United Gold & Government Fund, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED GOLD & GOVERNMENT FUND, INC. UNITED MISSOURI BANK, n.a.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
UNITED GOLD & GOVERNMENT FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of September 5, 1995
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, Brazil BOVESPA, CLC
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De France
Germany Berliner Handels Und Frankfurter Bank KASSENVEREIN
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing
Company
India Citibank, N.A., Bombay None
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED GOLD & GOVERNMENT FUND, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of January 1, 1995
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at
the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of Euroclear issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-ggssa
SHAREHOLDER SERVICING AGREEMENT
(as Amended and Restated)
THIS AGREEMENT, made as of the 1st day of November, 1992, by and between
UNITED GOLD & GOVERNMENT FUND, INC., and Waddell & Reed Services Company (the
"Agent"), as amended and restated as of February 19, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder and includes
shares subject to instructions by the shareholder with respect to periodic
redemptions and/or reinvestment in additional shares of any dividends payable on
said shares. An account does not include shares held under a plan or program
issued by a unit investment trust for which Waddell & Reed, Inc. was or is the
depositor or sponsor;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement;
(iv) costs for special reports or information furnished on request pursuant to
this Agreement and not specifically required by the Agent by Paragraph 3 of this
Agreement; and (v) reasonable costs and expenses incurred by the Agent in
connection with the duties of the Agent described in Paragraph (3)(1)(i). In
addition, the Company agrees to promptly pay over to the Agent any fees or
payment of charges it may receive from a shareholder for services furnished to
the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's facilities in accordance with reasonable procedures at the
frequency necessary to assure proper administration of the Agreement. The Agent
will cooperate with the Company's auditors or representatives of appropriate
regulatory agencies and furnish all reasonably requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED GOLD & GOVERNMENT FUND, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
High Income protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.0208 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
High Income or
Name of High Income Policy No. Insurer
Investment Company 87015195B ICI Mutual
Blanket High Income Form Insurance
Company
Fidelity $17,500,000
Audit Expense 500,000
On Premises 17,500,000
In Transit 17,500,000
Forgery or Alteration 17,500,000
Securities 17,500,000
Counterfeit Currency 17,500,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 17,500,000
Total Limit 17,500,000
Directors and Officers/ 87015195D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument High Income (Mail Loss) 30S100639551
Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-ggasa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 1st day of August, 1990, by and between
United Gold & Government Fund, Inc. (the "Fund"), a Maryland corporation and
Waddell & Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting Services
Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services Agent
for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act of
1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may make
arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information from
which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B
(6) In the event any of the Agent's facilities or equipment necessary
for the performance of its duties hereunder is damaged, destroyed or rendered
inoperable by reason of fire, vandalism, riot, natural disaster or otherwise,
Agent will use its best efforts to restore all services hereunder to the Fund
and will not seek from the Fund additional compensation to repair or replace
damaged or destroyed facilities or equipment. The Agent shall also make and
maintain arrangements for emergency use of alternative facilities for use in the
event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during the
prior month:
Fund's Average Daily Net Asset for Monthly Fee
the Month
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the Fund's
accounting and portfolio records maintained by the Agent hereunder at the
Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund all
such records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Fund hereunder; (ii) for any delay, error or omission by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties (except with respect to the Agent's employees),
fire, mechanical breakdown beyond its control, flood catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply; or (iii) for any action taken or omitted to be
taken by the Agent in good faith in reliance on the accuracy of any informatio
provided to it by the Fund or its directors or in reliance on any advice of
counsel who may be internally employed counsel or outside counsel for the Fund
or advice of any independent accountant or expert employed by the Fund with
respect to the preparation and filing of any document with a governmental agency
or authority.
In order for the rights to indemnification to apply, it is understood
that if in any case the Fund may be asked to indemnify or hold the Agent
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and, in
the event that the Fund so elects, it will so notify the Agent, and thereupon
the Fund shall take over complete defense of the claim, and the Agent shall
sustain no further legal or other expenses in such situation for which the Agent
shall seek indemnification under this paragraph. The Agent will in no case
confess any claim or make any compromise in any case in which the Fund will be
asked to indemnify the Agent except with the Fund's prior written consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one (1) year and from year-to-year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended, or a new agreement covering the same topics between the Fund and the
Agent may be entered into only if the terms of this Agreement, such continuance,
the terms of such amendment or the terms of such new agreement have been
approved by the Board of Directors of the Fund, including the vote of a majority
of the directors who are not "interested persons," as defined in the Act, of
either party to this Agreement, the agreement to be continued, amendment or new
agreement, cast in person at a meeting called for the purpose of voting on such
approval. Such a vote is hereinafter referred to as a "disinterested director
vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be performed
under the Agreement, the Agreement as amended, new agreement or agreement to be
continued, are services required for the operation of the Fund; (iii) the Agent
can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and (iv) the
fees for such services are fair and reasonable in the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested director vote
from being conditioned on the favorable vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Fund at least one hundred twenty (120) days' written
notice (which notice may be waived by the Fund) and may be terminated by the
Fund at any time without penalty upon giving the Agent at least sixty (60) days'
written notice (which notice may be waived by the Agent), provided that such
termination by the Fund shall be directed or approved by the vote of a majority
of the Board of Directors of the Fund in office at the time or by the vote of
the holders of a majority (as defined in or under the Act) of the outstanding
shares of the Fund
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of the
Fund's records in machine readable form as may be maintained by the Agent, as
well as such summary and/or control data relating thereto used by or available
to the Agent.
(3) In addition, on such termination or in preparation therefore at
the request of the Fund and at the Fund's expense, the Agent shall provide, to
the extent that its capabilities then permit, such documentation, personnel and
equipment as may be reasonably necessary in order for a new agent or the Fund to
fully assume and commence to perform the agency functions described in this
Agreement with a minimum disruption to the Fund's activities.
(4) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940 and the rules and
regulations thereunder of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
United Gold & Government Fund, Inc.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
ATTEST:
By:/s/Sharon K. Pappas
- ----------------------
Sharon K. Pappas, Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
------------------------
Robert L. Hechler
ATTEST:
By:/s/Rodney O. McWhinney
- -------------------------
Rodney O. McWhinney, Secretar
EX-99.B9(d)-GGSAA
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 19th day of February, 1996, by
and between United Gold & Government Fund, Inc. (the "Company") and Waddell &
Reed, Inc. ("W&R").
WHEREAS, the Company and W&R have entered into a certain Service Agreement dated
October 1, 1993, as amended September 1, 1994, which the parties now desire to
amend to clarify that the Service Agreement, as amended, relates solely to the
Class A shares of the Company, as such shares may now or in the future exist;
AND WHEREAS, the Company has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan applicable to Class A shares.
NOW THEREFORE, it is mutually agreed as follows:
1. It is understood that the Service Agreement, as previously amended, is
applicable only with respect to the Class A shares of the Company, as such
shares may now or in the future exist.
2. The Company represents that this Amendment has been approved by vote of the
Board of Directors of the Company and of the directors of the Company who
are not interested persons of the Company and who have no direct financial
interest in the operation of the Service Plan or this Agreement
("independent directors"), which was cast in person by such directors at a
meeting called for the purpose of voting on approval of this Amendment.
3. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in
the Service Agreement and to the other provisions set forth therein.
UNITED GOLD & GOVERNMENT FUND, INC.
By:
------------------------
Sharon K. Pappas
Waddell & Reed, Inc.
By:
-----------------------
Robert L. Hechle
EX-99.B9-ggappca
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 Tramsmitted: _____
________________________________________________________________________
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
Fidciary Trust Co.)
________________________________________________________________________
RETIREMENT PLAN (Fiduciary Trust Co -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] Keogh Participant (Profit Sharing Plan)
[ ] Rollover (Qual. plan lump [ ] Keogh Participant (Money Purchase Plan)
sum distr.) (For a new Plan, tear out page 2 of
[ ] Simplified Pension Plan Adoption Agreement in MRP1182)
(For a new, Plan tear out
page 1 of Adoption Agreement
in MRP1166)
[ ] TSA or [ ] 457 ____________________________________________
(If billing is required, Employer's Name (Do not Abbreviate)
attach form #CUF1417) _____________________________________________
Street City State Zip
[ ] If Tri-Vest, enter Partnership name _____________________ Amt $______
(Attach subscription Agreement and
Confidential Questionnaire CRP1186)
United Fund to receive partnership distributions: _____________________
Fund Name
Note: If Partnership not available W&R is authorized to place
investments in United Cash Management (a Fund of The United
Group of Funds) until next partnership is available.
________________________________________________________________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT:
(Must have same ownership) [][][][][][][]-[]
Date of Birth
___________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
_________________________
_______________________
Month Day Year
___________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
_________________________ _____________
Month Day Year Relationship (For grouping purposes)
___________________________________________________________________________
Mailing Address
____________________________ ______________ ________ ____/_______-______
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
___________________________________________________________________________
INVESTMENTS Make check payable to Waddell & Reed
Code Code
621-Income 626-Gold & Government
622-Science and Technology 627-Continental Income
623-Accumulative 628-High Income
624-Bond 629-Vanguard
625-International Growth 630-New Concepts
Code Code
634-High Income II 760-Municipal Bond (not available
680-Retirement Shares for Ret. Plans)
684-Asset Strategy 762-Municipal High Income (not
750-Cash Management available for Ret. Plan)
___________________________________________________________________________
OPEN ACCOUNT
If Retirement Plan
Fund Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
[][][] $_________ _________ 19_____ ______
Total $_________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
[] $_________ [] [] [] __________
$_________
___________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Reinvest Cap Gain
INVESTMENT PROGRAM
Fund Completion Amount If IRA, Yr.
(enter code) Amount Enclosed of Contribution
[][][] $__________ $__________ 19_____
(621,625,629)
Deductible or Monthly AIS*
Non-Deductible (If any)
______ $_________
___________________________________________________________________________
OPEN ACCOUNTS ONLY
This Purchase entitled to a reduced sales load charge for the following reason:
[ ] Statement of Intention to Invest $____________ [ ] (600 products)
[ ] New SOI (Attach CUF0671) [ ] Existing SOI [ ] (700 products)
[ ] Rights of Accumulation With Accounts ___,___,___ or Group [][][][][][][]
[ ] Identify Other Accounts Being Established at This Time: _______________
___________________________________________________________________________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
___________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only.
Complete items below:
_______________________________________________
Name & Address of Bank/Broker/Savings & Loan
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Account Number
If Account is with a Broker or Savings and Loan, provide
_______________________________________________
Name of Its Commercial Bank
_______________________________________________
Street
_______________________________________________
City State Zip
_______________________________________________
Its Account # with Its Commercial Bank
On United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account. All wires must be
transmitted exactly as registered on the United Cash Management Fund Account.
___________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification No. Relationship Percent
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
________________________ ______________________ ____________ ______%
___________________________________________________________________________
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ___
4. Occupation: _________________________ 5. Employer Name: _____________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $___ 11. Investment Objectives (mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $___ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $___ [] Children's College []Income
10. Are you associated with an NASD Member? Yes ___ No ___ [] Other
needs/goals
(specify in
Special
Remarks)
12. Special Remarks/Considerations: _______________________________________
___________________________________________________________________________
13. Residence Address: ____________________________________________________
(if different from Street City State Zip
Mailing Address on
Reverse Side)
___________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus of the Funds selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan and Custody Agreement and agree to the terms and conditions set forth
therein, and do hereby establish the Individual Retirement Plan.
* Under penalities 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-ggappcy
UNITED FUND GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing
an application and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission,
Kansas 66202 Date:
Fill in where applicable 6300 Lamar, Shawnee Mission, Kansas 66202.
Account Name ___________________________________________________________________
Tax I.D. No. _________________________________
Registration
Name _______________________________________________________________or
______________________________________________________________________
Number and Street _____________________________________________________
Soc. Sec. No. _________________________________
FULL ADDRESS
Please fill in completely, including telephone number.
City______________State _________Zip Code _________
Telephone _________________________________________________ Citizen of: []
U.S. [] Other (specify) ___________________________
[] Please establish an account(s) as follows:
INITIAL Dividends and capital
INVESTMENT(S): gains to be paid in:*
Account No. Assigned _________________Amount Shares Cash
FUND(S) TO BE PURCHASED
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
Total amount $________________ *If no election is checked,
all payments will be made in shares.
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions
received by telephone to have amounts withdrawn from my organization's
account(s) in the Portfolio(s) and wired or mailed to the bank account designed
below.
I (We) hereby ratify any such instructions and agree that none of the Fund(s),
Waddell & Reed, Inc. nor Waddell & Reed Services will be liable for any loss,
liability, cost or expense for acting upon such instructions in accordance with
the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank should be a member of the Federal
Reserve System.
SERVICE
Please fill in completely.
Name of Bank
_____________________________________________________________________
Bank A.B.A. No. _________________________
Number and Street
____________________________________________________________________________
City ___________________________________________________ State
_________________________________ Zip Code ___________________
Account Name __________________________________________________________ Account
No. ________________________________________
TELEPHONE This account will be established with a telephone exchange
EXCHANGE privilege which will authorize Waddell & Reed Services Co. to act upon
PRIVILEGE instructions by telephone to exchange Fund shares held in my (our)
account for shares of other Funds eligible under the Exchange Privilege to be
held in an identically registered account(s) (see Prospectus for details),
unless you check the box on the left to indicate your rejection of this service.
Check box at the right
if this service is NOT requsted. I (We) hereby ratify any instructions given
pursuant to this authorization and agree that none of the funds, Waddell & Reed,
Inc. nor Waddell & Reed Serices Company will be liable for any loss, liability,
cost or expense for acting upon instructions believed to be genuine.[]
Under penalties of perjury, I (we) certify that the number shown on this
application is the correct Tax Identification Number of my organization (or my
correct Social Security Number if the account is for my personal use) and that
the organization is not (I am not) subject to backup withholding either because
if it has not (I have not) been notified that it is (I am) subject to backup
withholding as a result of a failure to report all interest, dividends or
capital gains, or the Internal Revenue Service has notified it (me) that it is
no (I am no) longer subject to backup withholding. The undersigned certify that
I (we) have full authority and legal capacity to purchase shares of the Fund and
affirm that I (we) have received a current Prospectus and agree to be bound by
its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate resolution on
reverse side.
1.___________________ 2. ___________________________
Authorized Signature Authorized Signature
_____________________ ____________________________
Title Title
3. _________________ 4. ___________________________
Authorized Signature Authorized Signature
____________________ ____________________________
Title Title
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. AFFILIATES AND ITS CUSTODIAN
BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY WRITTEN
NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he is duly elected (title)
__________________________________________ of (corporate name)
_________________________ a corporation organized under the laws of (the State
of) __________________________ and that the following is a true and correct copy
of a resolution adopted by the corporation's Board of Directors at a meeting
duly called and held on (date) ________________________________.
RESOLVED, that any (enter number required to act) _________ of the corporation's
following identified officers (enter titles only)
____________________________________
____________________________________________________________________ are
authorized to execute investment applications with the United Fund Group/W&R
Funds and any Fund investment accounts in the name of the corporation; to invest
such funds of the corporation in shares issued by one or more United Fund/W&R
Funds ("Fund Shares"), as they deem appropriate; and to issue instructions
(including the execution of money fund drafts, if applicable) pertaining to the
redemption, exchange or transfer of Fund Shares.
FURTHER RESOLVED, that each shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals occupy the
offices designated. (Attach additional list if necessary.)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
___________________________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________________________________
Name and Title
CONFIDENTAL DATA (Must be completed on New Accounts/New Products)
1. Annual Income: $_______________________________ 2. Taxable Income:
$________
3. Total Investment Assets: ________________________________________________
4. Other Assets: _______________________________________
5. Net Worth (Assets minus Liabilities):
________________________________________________________________________________
________________
6. Investment Objectives (mark all that apply)6. [] Retirement Needs h
Reserves6. [] Other needs/goals (specify in Special Remarks)
7. Special Remarks/Considerations:
________________________________________________________________________________
________________________________
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
Obtain account number from the Fund. Complete Purchase Application
Telephone toll free: 1-800-366-2520 Make check payable to Waddell & Reed, Inc.
Instruct bank to transmit investment by Federal funds wire to: u
Mail application and check to:
United Missouri Bank Waddell & Reed Services
Co.,Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________________________
Fund Acct # _______________________________
FUND CODES
737 - United Accumulative - Class Y 763 - United Municipal High
Income - Class Y
785 - United Asset Strategy - Class Y 748 - United New Concepts -
Class Y
738 - United Bond - Class Y 783 - United Retirement Shares
- - Class Y
745 - United Continental Income - Class Y 736 - United Science and
Technology - Class Y
744 - United Gold & Government - Class Y 747 - United Vanguard -Class Y
754 - United Government Securities - Class Y 716 - W&R Asset Strategy -
Class Y
746 - United High Income - Class Y 715 - W&R International Growth
- - Class Y
749 - United High Income II - Class Y 712 - W&R Growth - Class Y
735 - United Income - Class Y 713 - W&R Limited-Term Bond -
Class Y
739 - United International Growth - Class Y 714 - W&R Municipal Bond -
Class Y
761 - United Municipal Bond - Class Y 711 - W&R Total Return Class Y
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
August 4, 1995 and January 31, 1995, relating to the financial statements and
financial highlights of United Gold & Government Fund, Inc., which appears in
such Statement of Additional Information, and to the incorporation by reference
of our reports into the Class A Shares Prospectus and the Class Y Shares
Prospectus which constitute part of this Registration Statement. We also
consent to the reference to us under the heading "Custodial and Auditing
Services" in such Statement of Additional Information, to the reference to us
under the heading "Financial Highlights" in the Class A Shares Prospectus and to
the references to us under the heading "Independent Accountants" in the Class A
Shares Prospectus and the Class Y Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
December 21, 1995
EX-99.B15-ggspca
SERVICE PLAN
FOR CLASS A SHARES
(Adopted on October 1, 1993
and Restated on February 19, 1996)
This Plan is adopted by United Gold & Government Fund, Inc. (the "Company"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Act") to provide for payment by the Company of certain expenses in connection
with the provision of personal services to the Company's Class A shareholders
and/or maintenance of its Class A shareholder accounts. Payments under the Plan
are to be made to Waddell & Reed, Inc. ("W&R") which serves as the principal
underwriter for the Company under the terms of a written Service Agreement
("Agreement") separate and apart from the Underwriting Agreement pursuant to
which W&R offers and sells the shares of the Company.
Service Fee
The Company is authorized to pay to W&R an amount not to exceed .25 of 1% of the
average net assets of the Class A shares as a "service fee" to finance
shareholder servicing by W&R, its affiliated companies and broker-dealers who
may sell Class A shares and to encourage and foster the maintenance of Class A
shareholder accounts. The amounts shall be payable to W&R monthly or at such
other intervals as the board of directors may determine to reimburse W&R for
costs and expenses incurred.
NASD Definition
For purposes of this Plan the "service fee" shall be considered a payment made
by the Company for personal service and/or maintenance of Class A shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Article III, Section 26(b) of its Rules of Fair
Practice that differs from the definition of "service fee" as presently used, or
if the NASD adopts a related definition intended to define the same concept, the
definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the service fee paid or payable to it under this Plan and the
purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of at least
a majority of the outstanding Class A voting securities of the Company (as
defined in the Act) and by a vote of the board of directors of the Company and
of the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purpose of voting on such Plan. The initial Agreement shall become effective
the effective date of this Plan, provided, however, that it has been approved in
accordance with the requirements of Rule 12b-1 under the Act.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year-to-year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of a Plan by the directors and independent directors.
Director Consideration
In considering whether to adopt, implement or continue this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Company or by a vote of the majority of the
outstanding Class A voting securities of the Company without penalty. On
termination, the payment of all service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any cost or expenditure it has
made or may make to service Class A shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
personal service and/or maintenance of shareholder accounts without approval of
the Class A shareholders, and all material amendments of this Plan must be
approved in the manner prescribed for the adoption of the Plan as provided
hereinabove.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of this Plan, the Agreement and reports made pursuant to this Plan shall
be preserved as provided in Rule 12b-1(f) under the Act.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000764842
<NAME> UNITED GOLD & GOVERNMENT FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 33,525,453
<INVESTMENTS-AT-VALUE> 35,365,174
<RECEIVABLES> 174,074
<ASSETS-OTHER> 11,523
<OTHER-ITEMS-ASSETS> 3,751
<TOTAL-ASSETS> 35,554,522
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 195,748
<TOTAL-LIABILITIES> 195,748
<SENIOR-EQUITY> 4,186,616
<PAID-IN-CAPITAL-COMMON> 58,180,356
<SHARES-COMMON-STOCK> 4,186,616
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 287,220
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (29,135,150)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,839,732
<NET-ASSETS> 35,358,774
<DIVIDEND-INCOME> 105,314
<INTEREST-INCOME> 577,119
<OTHER-INCOME> 0
<EXPENSES-NET> 307,859
<NET-INVESTMENT-INCOME> 374,574
<REALIZED-GAINS-CURRENT> 2,243,184
<APPREC-INCREASE-CURRENT> (1,499,521)
<NET-CHANGE-FROM-OPS> 1,118,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 88,668
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,416,123
<NUMBER-OF-SHARES-REDEEMED> 2,811,541
<SHARES-REINVESTED> 10,588
<NET-CHANGE-IN-ASSETS> (2,063,230)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 126,865
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 307,859
<AVERAGE-NET-ASSETS> 35,767,781
<PER-SHARE-NAV-BEGIN> 8.19
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.45
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000764842
<NAME> UNITED GOLD & GOVERNMENT FUND, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 35,453,750
<INVESTMENTS-AT-VALUE> 38,793,003
<RECEIVABLES> 84,959
<ASSETS-OTHER> 10,646
<OTHER-ITEMS-ASSETS> 4,408
<TOTAL-ASSETS> 38,893,016
<PAYABLE-FOR-SECURITIES> 1,146,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 324,262
<TOTAL-LIABILITIES> 1,471,012
<SENIOR-EQUITY> 4,571,446
<PAID-IN-CAPITAL-COMMON> 60,888,325
<SHARES-COMMON-STOCK> 4,571,446
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,099
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (31,384,119)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,339,253
<NET-ASSETS> 37,422,004
<DIVIDEND-INCOME> 576,493
<INTEREST-INCOME> 368,506
<OTHER-INCOME> 0
<EXPENSES-NET> 696,646
<NET-INVESTMENT-INCOME> 248,353
<REALIZED-GAINS-CURRENT> 3,604,960
<APPREC-INCREASE-CURRENT> (12,222,484)
<NET-CHANGE-FROM-OPS> (8,369,171)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 249,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,361,695
<NUMBER-OF-SHARES-REDEEMED> 1,522,587
<SHARES-REINVESTED> 28,118
<NET-CHANGE-IN-ASSETS> (9,485,909)
<ACCUMULATED-NII-PRIOR> 8,046
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 312,911
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 696,646
<AVERAGE-NET-ASSETS> 43,683,921
<PER-SHARE-NAV-BEGIN> 9.97
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> (1.78)
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.19
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-ggmcp
UNITED GOLD & GOVERNMENT 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 High Income Fund II, 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 February 19, 1996 ("Implementation Date").
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public subject
to an initial sales charge. The maximum sales charge is 5.75% 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.
December 21, 1995
Effective: February 19, 1996
