<PAGE>
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. 16
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 16
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)
__X__ on March 31, 1995 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragra6h (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, 1994 was filed on February 21,
1995.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
===================================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
--------- ------------------
1 ........................ Cover Page
2(a) ..................... Summary of Expenses
(b) ..................... *
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... Financial Highlights
(c) ..................... Performance Information
(d)...................... Performance Information
4(a) ..................... What is the Fund?; Goal and Investment
Policies of the Fund
(b) ..................... Goal and Investment Policies of the Fund
(c) ..................... Goal and Investment Policies of the Fund
5(a) ..................... What is the Fund?
(b)...................... Management and Services; Inside Back Cover
(c) ..................... Management and Services
(d) ..................... Management and Services; Inside Back Cover
(e) ..................... Management and Services; Inside Back Cover
(f) ..................... Management and Services
(g)(i)................... *
(g)(ii).................. Management and Services
5A........................ **
6(a) ..................... What is the Fund?
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Management and Services
(f)...................... Dividends, Distributions and Taxes
(g) ..................... Dividends, Distributions and Taxes
7(a) ..................... Management and Services; Inside Back Cover
(b) ..................... Purchase of Shares
(c) ..................... Purchase of Shares
(d) ..................... Purchase of Shares
(e) ..................... *
(f) ..................... Management and Services
8(a) ..................... Redemption
(b) ..................... *
(c) ..................... Redemption
(d) ..................... Redemption
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
--------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Objective and Policies of the Fund
(b) ..................... Investment Objective and Policies of the Fund
(c) ..................... Investment Objective and Policies of the Fund
(d) ..................... Investment Objective and Policies of the Fund
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... Directors and Officers
(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) ..................... *
(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) ................. *
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ **
---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in Prospectus
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
-----------------------------------------------------------------
March 31, 1995
PROSPECTUS
-----------------------------------------------------------------
United Gold & Government Fund, Inc. (the "Fund") is a management
investment company which seeks a high total return to investors by
investing in (i) minerals-related securities and gold, silver and platinum
during periods of actual or expected inflation; (ii) 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. See
"Goal and Investment Policies of the Fund" for the definitions of each of
these types of investments. There is no assurance that the Fund will
achieve its goal. The Fund is subject to significant risks associated with
investments in gold and other minerals-related securities, foreign
securities and precious metals. See "Risk Factors" for a discussion of
these risks.
This Prospectus contains concise information about the Fund of
which you should be aware before investing. Additional information has
been filed with the Securities and Exchange Commission and is contained in
a Statement of Additional Information (the "SAI"), dated March 31, 1995.
You may obtain a copy of the SAI free of charge by request to the Fund or
its Underwriter, Waddell & Reed, Inc., at the address or telephone number
shown below. The SAI is incorporated by reference into this Prospectus and
you will not be aware of all facts unless you read both this Prospectus and
the SAI.
Retain This Prospectus For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
Summary of Expenses
Shareholder Transaction Expenses
--------------------------------
Maximum Sales Load Imposed on Purchases 5.75%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
------------------------------
(as a percentage of average net assets)
Management Fees 0.72%
12b-1 Fees* 0.14%
Other Expenses 0.73%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses 1.59%
Example 1 year 3 years 5 years 10 years
------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $73 $105 $139 $236
The purpose of this table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly
or indirectly. The example should not be considered a representation of
past or future expenses. Actual expenses may be greater or lesser than
those shown.
*See "Management and Services" for further information about the 12b-1
service fees.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP.
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
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.
</TABLE>
Information regarding the performance of the Fund is contained in
the Fund's annual report to shareholders which may be obtained without
charge by request to the Fund at the address or phone number shown on the
cover of this Prospectus.
<PAGE>
What is the Fund?
United Gold & Government Fund, Inc. is a corporation organized under
Maryland law on February 28, 1985. It is an open-end diversified
management investment company commonly called a "mutual fund." The Fund
has a Board of Directors which has overall responsibility for the
management of its affairs. For the names of the Directors and other
information about them, see the SAI. The Fund has only one class of
shares. Each share has the same rights to dividends and to vote. Shares
are fully paid and nonassessable when bought. The Fund does not hold
annual meetings of shareholders; however, certain significant corporate
matters, such as the approval of a new investment advisory agreement or a
change in a fundamental investment policy, which require shareholder
approval, will be presented to shareholders at an annual or special meeting
called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by the Fund of a request in writing signed by shareholders holding
not less than 25% of all shares entitled to vote at such meeting, provided
certain conditions stated in the Bylaws of the Fund are met. There will
normally be no meeting of shareholders for the purpose of electing
directors until such time as less than a majority of directors holding
office have been elected by shareholders, at which time the directors then
in office will call a shareholders' meeting for the election of directors.
To the extent that Section 16(c) of the Investment Company Act of 1940, as
amended, applies to the Fund, the directors are required to call a meeting
of shareholders for the purpose of voting upon the question of removal of
any director when requested in writing to do so by the shareholders of
record of not less than 10% of the Fund's outstanding shares.
Performance Information
From time to time Waddell & Reed, Inc. or the Fund may include
performance data in advertisements or in information furnished to present
or prospective shareholders. Fund performance may be shown by presenting
one or more performance measurements, including total return and
performance rankings.
The Fund's total return is its overall change in value for the period
shown including the effect of reinvesting dividends and capital gains
distributions and any change in the net asset value per share. A
cumulative total return reflects the Fund's change in value over a stated
period of time. An average annual total return reflects the hypothetical
annually compounded return that would have produced the cumulative total
return for a stated period if the Fund's performance had been constant
during each year of that period. Average annual total returns are not
actual year-by-year results and investors should realize that total returns
will fluctuate.
Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge or which is for
periods other than those required to be presented or which differs
otherwise from standardized performance information. See the SAI for total
return and method of computation.
From time to time in advertisements and information furnished to
present or prospective shareholders the Fund may discuss its performance
rankings as published by recognized independent mutual fund statistical
services such as Lipper Analytical Services, Inc., or by publications of
general interest such as Forbes, Money, The Wall Street Journal, Business
Week, Barron's, Fortune or Morningstar Mutual Fund Values. The Fund may
also compare its performance to that of other selected mutual funds or
selected recognized market indicators. Performance information may be
quoted numerically or presented in a table, graph or other illustration.
All performance information which the Fund advertises or includes in
information provided to present or prospective shareholders is historical
in nature and is not intended to represent or guarantee future results.
The value of the Fund's shares when redeemed may be more or less than their
original cost.
Goal and Investment Policies of the Fund
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, the Fund's manager, Waddell & Reed Investment
Management Company (the "Manager"), will attempt to anticipate inflationary
and disinflationary periods and manage the Fund's investments in a manner
designed to achieve the Fund's goal.
The goal of the Fund is to seek a high total return to investors.
Total return is the aggregate of income and appreciation of share value.
See above for how total return is calculated. This goal is a fundamental
policy which can only be changed by shareholder vote. The Fund will
attempt to achieve this goal by investing (i) in minerals-related
securities and gold, silver and platinum during periods of actual or
expected inflation; (ii) in U.S. Government Securities during periods of
actual or expected disinflation or low inflation; and (iii) in 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. U.S. Government Securities are securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
As a matter of fundamental policy the Fund will not invest in other
than (i) those minerals-related securities which are related to the mining,
processing, production, exploration, refining or sales of gold; and/or (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. It 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. As a fundamental policy, the Fund may not invest
more than 25% of its total assets in gold, silver and platinum.
It is a fundamental policy of the Fund to concentrate (i.e., invest
more than 25% of its assets) its investments 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% 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 "Risk Factors."
The Manager 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 the Manager 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.
The Manager 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
the Manager 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 the Manager 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, the Manager
will take into account factors other than those given in these examples and
the Manager'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. The Manager's evaluation takes into
consideration political instability in certain parts of the world as well
as domestic and international economic factors.
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.
The securities the Fund will invest in include common stock,
preferred stock, debt securities and convertible securities. Common stock
is an ownership interest in a company. Preferred stock is also an
ownership interest, but usually is entitled to a stated amount of
dividends. Debt securities are an obligation to pay a specified sum on a
specified date and to pay interest in the meantime. Convertible securities
may be exchanged for another type of securities; for example, certain debt
securities are convertible into common stock. Common stocks generally
offer the greatest possibilities for growth, but may not offer as much
safety of capital as preferred stocks or debt securities. These securities
in which the Fund may invest include preferred stock that converts to
common stock either automatically or after a specified period of time or at
the option of the issuer, and debt securities whose performance is linked
to a specified equity security or securities index. U.S. Government and
other debt securities increase and decrease in value, depending in large
part on changes in prevailing interest rates. An increase in interest
rates may cause the value of a debt security to go down; a decrease in
interest rates may cause the value of a debt security to go up. Preferred
stocks may increase and decrease in value for similar reasons. Changes in
interest rates may cause long-term obligations to fluctuate more in value
than short-term obligations. The Fund has no policy limiting the maturity
of the debt instruments in which it invests. The Fund may invest in debt
securities rated in any rating category and unrated securities judged by
the Manager to be of equivalent quality; however, 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. See the SAI for a
discussion of the risks associated with non-investment grade debt
securities.
Securities issued or guaranteed by the U.S. Government include a
variety of Treasury securities that differ only in their interest rates,
maturities and dates of issuance. Except for U.S. Treasury securities,
obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Many
are backed by the right of the issuer to borrow from the Treasury; others
such as the Student Loan Marketing Association are supported by
discretionary authority of the U.S. Government to purchase the agencies'
obligations. In the case of securities not backed by the full faith and
credit of the United States, the Fund must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment, and may not
be able to assert or claim against the United States itself in the event
the agency or instrumentality does not meet its commitment. The Fund will
invest in securities of such instrumentality only when the Manager is
satisfied that the credit risk with respect to any such instrumentality is
acceptable.
Among the U.S. Government Securities that the Fund may purchase are
"mortgage-backed securities" of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Association
("Freddie Mac") and the Federal National Mortgage Association ("Fannie
Mae"). There is no percentage limitation on its purchase of these
securities. These mortgage-backed securities include "pass-through"
securities, participation certificates and collateralized mortgage
obligations ("CMOs"). The yield characteristics of mortgage-backed
securities, including CMOs, in which the Fund may invest differ from those
of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
and asset-backed securities and that principal may be prepaid at any time
because the underlying mortgage loans or other assets 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 is guaranteed by
the full faith and credit of the United States as to Ginnie Mae pass-
through securities but not as to obligations of Freddie Mac and Fannie Mae
which are backed by the right of the issuer to borrow from the Treasury.
There is no guarantee against market decline of the value of these
securities or shares of the Fund. It is possible that the availability and
the marketability (i.e., liquidity) of the securities discussed in this
paragraph could be adversely affected by actions of the U.S. Government to
tighten the availability of its credit. More information about the
characteristics of Treasury securities and the U.S. Government agencies
which issue or guarantee such securities is contained in the SAI.
The Fund may purchase U.S. Government Securities on a when-issued or
delayed delivery basis or sell them on a delayed delivery basis in order to
secure what is considered to be an advantageous price and yield at the time
of entering into the transaction. From the time of entering into the
transaction until the transaction is completed, the U.S. Government
Securities so purchased or sold are subject to market fluctuation. See the
SAI for further information about these transactions.
The Fund may buy and write (sell) put and call options on U.S.
Government Securities or write calls on securities whether or not they are
U.S. Government Securities subject to certain limitations which are set
forth in the SAI. Calls written by the Fund must be covered (i.e., the
Fund must own the securities which are subject to the call or have the
right to acquire them without additional payment). It may write options on
securities for the purpose of increasing its income by receiving premiums
paid by the purchaser of the options. It may purchase calls to take
advantage of an expected rise in the market value of securities which the
Fund does not hold in its portfolio.
It may purchase puts on related investments it owns ("protective
puts") or on related investments it does not own ("nonprotective puts").
Buying a protective put permits the Fund to protect itself during the put
period against a decline in the value of the related investments below the
exercise price by selling them through the exercise of the put. Buying a
nonprotective put permits the Fund, if the market price of the related
investments is below the put price during the put period, either to resell
the put or to buy the related investments and sell them at the exercise
price. 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.
The Fund may also buy and sell interest rate futures contracts
relating to U.S. Government Securities ("Government Securities Futures")
and options on such interest rate futures contracts for the purpose of
hedging the value of its securities portfolio against future changes in
interest rates. At the present time, the U.S. Government Securities to
which Government Securities Futures relate are long-term U.S. Treasury
Bonds, Treasury Notes, Government National Mortgage Association modified
pass-through mortgage-backed securities and three-month U.S. Treasury
Bills. It is a fundamental policy that the Fund's use of options and
futures contracts is limited to those relating to U.S. Government
Securities except for the writing of covered call options as stated above.
When the Fund is invested in U.S. Government Securities it may employ a
hedging strategy as a temporary measure in lieu of immediately
restructuring the Fund's portfolio in response to changes in interest rates
or other economic indicators. This will allow the portfolio to be
restructured by lengthening or shortening maturities or changing the
quality of the Fund's portfolio securities in a more orderly fashion should
the economic indicators continue to support a restructuring. See "Risk
Factors" and "Options and Futures" for information concerning the risks of
investments in options and futures.
The Fund may enter into forward foreign currency exchange contracts
("Forward Contracts") provided that it does not thereafter have more than
15% of its assets committed to the consummation of such contracts. A
Forward Contract is an obligation to purchase or sell specific currency at
a future date at a fixed price. The Fund enters into Forward Contracts to
attempt to protect against losses which may result from an adverse change
in the relationship between the U.S. dollar and a foreign currency but at
the same time Forward Contracts tend to limit any potential gain which
might result from currency changes. There are risks associated with the
use of such contracts due to the difficulty of accurately predicting short-
term currency market movements. See the SAI for further discussion.
The Fund may invest up to 2% of its assets in warrants which are
rights to purchase securities.
For the purpose of increasing income, the Fund may purchase
securities subject to repurchase agreements (which can be considered as
collateralized loans by the Fund) but may not cause more than ten percent
of its net assets to be subject to repurchase agreements not terminable
within seven days. The majority of the repurchase transactions in which
the Fund would engage run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the purchase. The
Fund's risk is limited to the ability of the vendor to pay the agreed-upon
sum upon the delivery date. The Fund may also lend its securities on a
short-term or long-term basis for the purpose of realizing income. The
Fund will not loan more than 30% of its assets at any one time. The
percentage limit and the requirement that such loans be on a collateralized
basis in accordance with certain regulatory requirements are fundamental
policies. 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 upon. There are certain
risks associated with lending securities in that the Fund may experience
delays in recovering the collateral or even loss of the collateral. See
the SAI for more information about these risks. The Fund may purchase
restricted foreign securities provided that after such purchase not more
than 5% of its total assets consist of such securities.
Due to their possible limited liquidity, the Fund may not make certain
investments if thereafter more than 10% of its net assets would consist of
such investments. The investments included in this 10% limit are: (i)
repurchase agreements not terminable within seven days; (ii) fixed time
deposits (including insured deposits) subject to withdrawal penalties other
than overnight deposits; (iii) restricted securities, i.e., securities
which cannot freely be sold for legal reasons; (iv) securities for which
market quotations are not readily available; and (v) unlisted options and
their underlying collateral to the extent such options are illiquid.
However, this 10% limit does not include any obligations payable at
principal amount plus accrued interest on demand or within seven days after
demand, which, in the opinion of the Manager, have minimal credit risk.
The Fund may purchase shares of investment companies which do not
redeem their shares provided that thereafter it does not have more than 10%
of its assets so invested, subject to the conditions stated in the SAI.
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 which 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. Option transactions
may increase the turnover rate. This results in correspondingly greater
commission expenses and transaction costs and may result in tax
consequences. See the SAI for additional information.
There is no assurance that the Fund will achieve its goal and an
investment in the Fund should not be considered a complete investment
program.
Risk Factors
Investments in minerals-related securities and precious metals are
considered speculative and involve substantial risks and special
considerations, including the following:
1. 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.
2. Concentration of Source of Gold Supply and Control of Gold Sales.
The four largest producers of gold are the Republic of South Africa, the
former Union of Soviet Socialist Republics, Canada and the United States.
Economic 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.
Political and social conditions in South Africa and unsettled political
conditions prevailing in neighboring countries may pose risks to the Fund,
which may invest up to 100% of its assets in securities of South African
issuers.
3. 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.
4. Foreign Securities. A major portion of the Fund's assets will
usually be invested in foreign securities during periods of actual or
anticipated inflation. There are also certain risks associated with
foreign securities not usually associated with U.S. securities including
absence of uniform accounting, auditing and financial standards, less
government regulation, changes in currency rates and in exchange
regulations, and political instability. See the SAI for further
discussions of these risks. When purchasing foreign securities, the Fund
may purchase American Depository Receipts ("ADR's"), which are certificates
issued by U.S. banks representing the right to receive securities of a
foreign issuer deposited with that or another bank, and may also purchase
securities of a foreign issuer directly in the foreign market. 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.
5. 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 the Manager'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.
Options and Futures
The primary risks associated with the use of options and futures
are: (i) loss of the increase in the value of securities owned by the Fund
if a call option sold by the Fund is exercised thereby requiring the Fund
to deliver the securities at a price which is lower than the market value
of the securities; (ii) incurring higher costs to purchase securities which
are subject to a put option sold by the Fund if the put is exercised and
the option price is higher than the market value of the security; (iii)
loss of premiums paid by the Fund on options it purchases; (iv) imperfect
correlation between the change in the market value of the U.S. Government
Securities held in the Fund's portfolio and the prices of futures and
options thereon relating to U.S. Government Securities purchased or sold by
the Fund; (v) incorrect forecasts by the Manager concerning interest rates
which may result in the hedge being ineffective; and (vi) possible lack of
a liquid secondary market for any option or futures contract; the resulting
inability to close an option or futures position could have an adverse
impact on the Fund's ability to hedge or increase income. For a hedge to
be completely effective, the price change of the hedging instrument should
equal the price change of the security being hedged. Such equal price
changes are not always possible because the investment underlying the
hedging instrument may not be the same investment that is being hedged.
Because the Fund may write certain uncovered calls on Debt Futures, there
is the additional risk that if an uncovered call the Fund wrote was
exercised, to meet the exercise the Fund would have to purchase the future
at whatever the market price might be at the time of the exercise. Gains
and losses on investments in options and futures contracts depend on the
Manager's ability to predict correctly the direction of stock prices,
interest rates and other economic factors. See the SAI for further
information about these instruments and their risks.
Management and Services
Waddell & Reed, Inc. and its predecessors served as investment
manager to each of the registered investment companies in the United Group
of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or the
inception of the investment company, whichever was later, and to TMK/United
Funds, Inc. since its inception. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
its investment management duties (and assigned its professional staff for
investment management services) to Waddell & Reed Investment Management
Company, a wholly-owned subsidiary of Waddell & Reed, Inc. The Manager has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992, Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. since each commenced operations in
February 1993 and United Asset Strategy Fund, Inc. since it commenced
operations in March 1995. Waddell & Reed, Inc. serves as the Fund's
underwriter and as underwriter for each of the investment companies in the
United Group of Mutual Funds and Waddell & Reed Funds, Inc. and serves as
the distributor of TMK/United Funds, Inc. Waddell & Reed, Inc. is an
indirect subsidiary of Torchmark Corporation, a holding company, and United
Investors Management Company, a holding company, and a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company.
Subject to authority of the Fund's Board of Directors, the Manager
provides investment advice and supervises investments for which it is paid
a fee consisting of two elements: (i) a "Specific" fee computed on the
Fund's net asset value as of the close of business each day at the annual
rate of .30 of 1% of net assets and (ii) a pro rata participation based on
the relative net asset size of the Fund in a "Group" fee computed each day
on the combined net asset value of all of the funds in the United Group at
the annual rates shown in the following table. The fee is accrued and paid
daily. Prior to the above-described assignment to the Manager on January
8, 1992, the fees were paid to Waddell & Reed, Inc.
Group Fee Rate
Group Net Asset Level Annual Group
(all dollars in millions) Fee Rate for Each Level
------------------------- -----------------------
From $ 0 to $ 750 .51 of 1%
From $ 750 to $ 1,500 .49 of 1%
From $ 1,500 to $ 2,250 .47 of 1%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc.,
acts as transfer agent ("Shareholder Servicing Agent") for the Fund and
processes the payments of dividends. See the SAI for the fees paid for
these services. Inquiries concerning shareholder accounts should be sent to
that company at the address shown on the inside back cover of this
Prospectus or to the Fund at the address shown on the front cover of this
Prospectus.
Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays the Accounting Services Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940, the Fund may pay monthly a fee to
Waddell & Reed, Inc., the principal underwriter for the Fund, in an amount
not to exceed .25% of the Fund's average annual net assets. The fee is to
be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts. In particular, the Service
Plan and a related Service Agreement between the Fund and Waddell & Reed,
Inc. contemplate that these expenditures may include costs and expenses
incurred by Waddell & Reed, Inc. and its affiliates in compensating,
training and supporting registered account representatives, sales managers
and/or other appropriate personnel in providing personal services to Fund
shareholders and/or maintaining shareholder accounts; increasing services
provided to Fund shareholders by office personnel located at field sales
offices; engaging in other activities useful in providing personal services
to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. See the SAI for additional information and terms of
the Service Plan.
The combined net asset values of all of the funds in the United Group
were approximately $11.0 billion as of December 31, 1994. Management fees
for the fiscal year ended December 31, 1994 were 0.72% of the Fund's
average net assets. The Fund's total expenses for that year were 1.59% of
its average net assets.
The Manager places transactions for the Fund's portfolio and in doing
so may consider sales of shares of the Fund and other funds it manages as a
factor in the selection of brokers to execute portfolio transactions. See
the SAI for further information.
Michael L. Avery is primarily responsible for the day-to-day
management of the portfolio of the Fund. Mr. Avery has held his Fund
responsibilities since February 1, 1994. He is Vice President of the
Manager and Vice President of the Fund. Mr. Avery has been an employee of
Waddell & Reed, Inc., and its successor, the Manager, since June 1981.
Other members of the Manager's investment management department provide
input on market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Dividends, Distributions and Taxes
Ordinarily, dividends are paid quarterly from net investment income,
which includes dividends, accrued interest, earned discount, and other
income earned on portfolio securities less expenses. The Fund also
distributes substantially all of its net capital gains (the excess of net
long-term capital gains over net short-term capital losses) and net short-
term capital gains, if any, after deducting any available capital loss
carryovers, and any net realized gains from foreign currency transactions,
with its regular dividend at the end of the calendar year. The Fund may
make additional distributions if necessary to avoid Federal income or
excise taxes on certain undistributed income and capital gains.
You have the option to receive dividends and distributions in cash,
to reinvest them in additional Fund shares without charge or to receive
dividends in cash and reinvest distributions, as you may instruct. In the
absence of instructions, dividends and distributions will be
reinvested.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will
be relieved of Federal income tax on that part of its investment company
taxable income (consisting generally of net investment income, net short-
term capital gains and net gains from certain foreign currency
transactions) and net capital gains that is distributed to its
shareholders.
Dividends from the Fund's investment company taxable income are
taxable to you as ordinary income, to the extent of the Fund's earnings and
profits, whether received in cash or reinvested in additional Fund shares.
Distributions of the Fund's realized net capital gains, when designated as
such, are taxable to you as long-term capital gains, whether received in
cash or reinvested 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 distributions paid (or
deemed paid) to you for that year.
A portion of the dividends paid by the Fund, whether received in cash
or reinvested 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.
The Fund is required to withhold 31% of all dividends, distributions
and redemption proceeds payable to individuals and certain other non-
corporate shareholders who do not furnish the Fund with a correct tax
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are
subject to backup withholding.
Your redemption of Fund shares will result in taxable gain or loss to
you, depending on whether the redemption proceeds are more or less than
your adjusted basis for the redeemed shares (which normally includes any
sales charge paid). An exchange of Fund shares for shares of any other
fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within 90 days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day
reinvestment privilege or exchange privilege. In these cases, any gain on
the disposition of the Fund shares would be increased, or loss decreased,
by the amount of the sales charge you paid when those shares were acquired,
and that amount will increase the adjusted basis of the shares subsequently
acquired. In addition, if you purchase Fund shares within thirty days
after redeeming other Fund shares at a loss, all or part of that loss will
not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the
SAI for a further discussion. There may be other Federal, state or local
tax considerations applicable to a particular investor. You are urged to
consult your own tax adviser.
Purchase of Shares
You may purchase shares through Waddell & Reed, Inc. and its
account representatives. To open an account you must complete an
application. Orders are accepted only at the home office of Waddell &
Reed, Inc. (see inside back cover of this Prospectus for address) and it
need not accept any orders. The offering price of a share is its net asset
value next determined following acceptance plus the sales charge shown in
the table below. This net asset value per share is the value of the Fund's
assets, less liabilities, divided by the number of shares outstanding. Net
asset value is determined once each day as of the later of the close of the
regular session of the New York Stock Exchange or the close of the regular
session of any domestic securities exchange or commodities exchange on
which an option or future held by the Fund is traded on each day the New
York Stock Exchange is open. The Fund may invest in securities listed on
foreign exchanges which may trade on Saturdays and on customary U.S.
national business holidays when the New York Stock Exchange is closed.
Consequently, the net asset value of Fund shares may be significantly
affected on days when the Fund does not price its shares and when the
shareholder has no access to the Fund. The securities in the Fund's
portfolio that are listed or traded on an exchange are valued using market
quotations or, if not available, at their fair value in a manner determined
in good faith by the Board of Directors. U.S. Government Securities are
valued according to prices quoted by a dealer in U.S. Government Securities
which offers a pricing service. Gold and silver bullion will be valued at
the last spot settlement price for current delivery as calculated by the
Commodity Exchange, Inc. as of the close of the regular session of the
Exchange. Platinum bullion will be valued at the last spot settlement
price as calculated by the New York Mercantile Exchange as of the close of
the regular session of that Exchange. If either exchange is closed on a
day when the New York Stock Exchange is open, value will be determined by
averaging quotes from two major dealers in the particular precious metal.
Short-term debt securities are valued at amortized cost which approximates
market value. Other assets are valued at their fair value.
Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering Price Amount 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 1,000,000 ..... 1.50 1.52
1,000,000 to less than 2,000,000 ..... 1.00 1.01
2,000,000 and over .................... 0.00 0.00
Ordinarily, the minimum initial investment is $500. A $50 minimum
initial investment pertains to 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 through automatic bank withdrawals, as described
below. A $100 minimum initial investment pertains to certain exchanges of
shares from other funds in the United Group.
A shareholder may arrange with Waddell & Reed, Inc. to purchase shares
by having regular monthly withdrawals of $25 or more made from a bank
account. A shareholder may also arrange with Waddell & Reed, Inc. to
purchase shares by having regular monthly exchanges of shares with a value
of $25 or more made from United Cash Management, Inc., subject to certain
conditions explained in the SAI.
Lower sales charges are available by combining additional purchases of
any of the funds in the United Group except United Municipal Bond Fund,
Inc., United Cash Management, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. with net asset value of shares
already held ("rights of accumulation") and by grouping all purchases made
during a thirteen-month period ("Statement of Intention"). Shares 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. Shares of this Fund may be exchanged for shares of another
fund in the United Group without payment of an additional sales charge.
Subject to certain conditions, automatic monthly exchanges of shares of
United Cash Management, Inc. and exchanges of shares of certain other funds
in the United Group (listed on back cover of this Prospectus) may be made
into the Fund. These exchange privileges may be eliminated or modified at
any time, upon notice in certain instances. Information as to rights of
accumulation, Statements of Intention, grouping by related persons,
exchange privileges, Flexible Withdrawal Service, Individual Retirement
Accounts, Section 403(b) plans, Keogh, 401(k), 457 plans and other
qualified employee benefit plans is contained in the SAI. Applicable forms
are available from Waddell & Reed, Inc.'s representatives.
Fund shares may be purchased at net asset value by the Directors
and officers of the Fund, employees of Waddell & Reed, Inc., employees of
their affiliates, sales representatives of Waddell & Reed, Inc. and the
spouse, children, parents, children's spouses and spouse's parents of each
such Director, officer, employee and sales representative. Purchases in
certain retirement plans and certain trusts for these persons may also be
made at net asset value. 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. Shares may also be issued at net
asset value in a merger, acquisition or exchange offer made pursuant to a
plan of reorganization to which the Fund is a party. See the SAI for
additional information.
Redemption
You have the right to sell your shares back to the Fund (redeem) at
any time by sending a written request to the address on the front cover of
this Prospectus, stating how many shares or the amount in dollars you wish
to redeem. The written request must be in good order which requires that
if more than one person owns the shares, each owner must sign the written
request. If you hold a certificate, it must be properly endorsed and sent
to the Fund. The Fund reserves the right to require a signature guarantee
by a national bank, a federally chartered savings and loan or a member firm
of a national stock exchange or other eligible guarantor in accordance with
procedures of the Fund's transfer agent in certain situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary, or the redemption request is made by, or redemption proceeds are
payable to, someone other than the owner of record. If you recently
purchased the shares by check, the payment of redemption proceeds on these
shares may be delayed. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written
assurance, satisfactory to the Fund, that the check has cleared and been
honored. If no such assurance is given, payment of the redemption proceeds
on these shares will be delayed until the earlier of 10 days or when the
Fund has been able to verify that your purchase check has cleared and been
honored.
The Fund will redeem your shares at their net asset value (which may
be more or less than what you paid) next computed after receipt of your
written request for redemption in good order at the Fund's address shown on
the front cover of this Prospectus. Payment is made within seven days,
unless delayed because of emergency conditions determined by the Securities
and Exchange Commission, when the New York Stock Exchange is closed (other
than on weekends and holidays) or when trading on the Exchange is
restricted. Payment is made in cash, although under extraordinary
conditions redemptions may be made in portfolio securities.
You may reinvest in the Fund all or part of the amount you redeemed
without charge by sending to the Fund the amount you wish to reinvest. The
reinvested amounts must be received within thirty days after the date of
your redemption. You may do this only once as to Fund shares.
Under the terms of the 401(k) 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 shares of any of the
funds in the United Group in which the plan may invest.
The Fund reserves the right to redeem at net asset value all shares
owned by a particular shareholder in the Fund having an aggregate net asset
value less than $500. The Fund will give the shareholder notice of
intention to redeem and a 60-day opportunity to purchase a sufficient
number of additional shares to bring the net asset value of his or her
shares in the Fund to $500. See the SAI for further information.
Information concerning the establishment of automatic payments from
an account is available from account representatives of Waddell & Reed,
Inc.
<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 18.
<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 18.
<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 14.
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 22.
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,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
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.
</TABLE>
See notes to financial statements.
<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 portfolio positions 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>
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 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse LLP P. O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P. O. Box 29217
Shawnee Mission, Kansas Shawnee Mission, Kansas 66201-9217
66201-9217 (913) 236-2000
(913) 236-2000
<PAGE>
United Gold & Government Fund, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
March 31, 1995
The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
TABLE OF CONTENTS
Summary of Expenses ..... 2
Financial Highlights .... 3
What is the Fund? ....... 4
Performance Information . 4
Goal and Investment Policies
of the Fund .......... 5
Risk Factors ............ 9
Options and Futures .....10
Management and Services .10
Dividends, Distributions
and Taxes ............12
Purchase of Shares ......13
Redemption ...........15
Financial Statements.....16
NUP1013(3-95)
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
March 31, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the
prospectus (the "Prospectus") of United Gold & Government Fund, Inc. (the
"Fund") dated March 31, 1995, which may be obtained from the Fund or its
underwriter, Waddell & Reed, Inc., at the address or telephone number shown
above.
TABLE OF CONTENTS
Performance Information .......................... 2
Investment Objective and Policies ................ 3
Investment Management and Other Services ......... 24
Purchase, Redemption and Pricing of Shares ....... 29
Directors and Officers ........................... 43
Payments to Shareholders ......................... 47
Taxes ............................................ 48
Portfolio Transactions and Brokerage ............. 52
Other Information ................................ 54
<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 from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be
reinvested at net asset value as of the day the dividend or distribution is
paid. No sales load is charged on reinvested dividends or distributions.
The formula used to calculate the total return is
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for
the periods shown.
Non-standardized performance information may also be presented and it
may not reflect the sales charge. For example, the Fund may also compute
total return without deduction of the sales load in which case the same
formula noted above will be used but the entire amount of the $1,000
initial payment will be assumed to have been invested. If the sales charge
were reflected, it would reduce the performance quoted.
The average annual total return quotations as of December 31, 1994,
which is the most recent balance sheet included in the Prospectus, for the
periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from January 1, 1994 to
December 31, 1994: -22.11%-17.36%
Five-year period from January 1, 1989 to
December 31, 1994: -1.10% 0.07%
Period from September 4, 1985* to
December 31, 1994: 7.79% 8.47%
*initial public offering date
The Fund may also quote unaveraged or cumulative total return which
reflects the change in value of an investment over a stated period of time.
Cumulative total returns will be calculated according to the formula
indicated above but without averaging the rate for the number of years in
the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune,
or Morningstar Mutual Fund Values. The Fund may also compare its
performance to that of other selected mutual funds or selected recognized
market indicators such as the Standard & Poor's 500 Stock Index and the Dow
Jones Industrial Average. Performance information may be quoted
numerically or presented in a table, graph or other illustration.
All performance information which the Fund advertises or includes in
sales material is historical in nature and is not intended to represent or
guarantee future results. The value of a Fund's shares when redeemed may
be more or less than their original cost.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
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.
Foreign Securities
Waddell & Reed Investment Management Company (the "Manager"), the
Fund's investment manager, believes that while there are investment risks
(see below) in investing in foreign securities, there are also investment
opportunities 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. The Manager 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.
An investment in foreign securities is also subject to currency
fluctuation. For example, when the Funds' assets are invested in
securities denominated in foreign currency, an investor can expect that the
Fund's net asset value per share will tend to increase when the value of
the U.S. dollar is decreasing as against such currencies. Conversely, a
tendency toward decline in net asset value can be expected when the value
of the U.S. dollar is increasing as against such currencies. An investment
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 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 which 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 United States' issuer.
When purchasing foreign securities, the Fund will ordinarily purchase
securities which are traded in the U.S. or purchase American Depository
Receipts ("ADR's") which are certificates issued by U.S. banks representing
the right to receive securities of a foreign issuer deposited with that
bank or a correspondent bank. However, the Fund may purchase the
securities of a foreign issuer directly in foreign markets so long as in
the Manager'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 foreign
countries deteriorate markedly.
Restricted Securities
The Fund may purchase foreign restricted securities. However, it will
not purchase 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 securities which are subject to legal or
contractual restrictions on resale.
Restricted securities which are traded in foreign markets are often
subject to restrictions which prohibit resale to United States 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.
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 as discussed below.
Any securities loans which 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 or U.S. Government
Securities (as defined in the Prospectus) 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 which 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.
The Manager, subject to the direction and control of the Board of
Directors, has adopted additional rules concerning lending of securities
which may be changed without shareholder vote. At present, under these
rules, the Fund will lend securities only to creditworthy broker-dealers
and financial institutions. The Fund will make loans only under rules of
the New York Stock Exchange, 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.
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.
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.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements.
A repurchase transaction occurs when, at the time the Fund purchases
securities, it also agrees to resell them to the vendor (normally a
commercial bank or broker-dealer), and must deliver those securities and/or
securities substituted for them under the repurchase agreement to the
vendor on an agreed-upon date in the future. In this section, such
securities, including any securities so substituted, are referred to as the
"Resold Securities." The resale price is in excess of the purchase price
in that it reflects an agreed-upon market interest rate effective for the
period of time during which the Fund's money is invested in the Resold
Securities. The majority of the repurchase transactions in which the Fund
would engage run from day to day, and the delivery pursuant to the resale
typically will occur within one to five days of the purchase. The Fund's
risk is limited to the ability of the vendor to pay the agreed-upon sum
upon the delivery date. In the event of bankruptcy or other default by the
vendor, there may be possible delays or expenses in liquidating the Resold
Securities, decline in their value or loss of interest. Upon default, the
Resold Securities constitute collateral security for the repurchase
obligation. The return on such collateral may be more or less than that
from the repurchase agreement. The Fund's repurchase agreements will be
structured so as to fully collateralize the loans, i.e., the value of the
Resold Securities, which will be held by the Fund's custodian bank or by a
third party that qualifies as a custodian under section 17f(5) of the
Investment Company Act of 1940, is and, during the entire term of the
agreement, remains at least equal to the value of the loan, including the
accrued interest earned thereon. Repurchase Agreements are entered into
only with those entities approved on the basis of criteria established by
the Board of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without
shareholder approval, which provides that due to their possible limited
liquidity, the Fund may not make certain illiquid investments if as a
result more than 10% of its net assets would consist of such investments.
The investments which are included in this 10% limit are: (i) repurchase
agreements not terminable within seven days; (ii) fixed time deposits
(including insured deposits) subject to withdrawal penalties other than
overnight deposits; (iii) restricted securities; (iv) securities for which
market quotations are not readily available; and (v) unlisted options and
their underlying collateral.
Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts
("Forward Contracts"), provided that it does not thereafter have more than
15% of the value of its assets committed to the consummation of all such
Forward Contracts; however, it will not enter into Forward Contracts or
maintain a net exposure to such Forward Contracts where the consummation of
the Forward 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. The Fund may hold foreign
currency only in connection with Forward Contracts, only up to four
business days, as well as in connection with the purchase or sale of
foreign securities, but not otherwise. All the policies stated in this
paragraph are fundamental policies.
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.
The Fund expects to use Forward Contracts under two circumstances:
1. When the Manager wishes to "lock in" the U.S. dollar price of a
security when the Fund is purchasing or selling a security denominated
in a foreign currency;
2. When the Manager believes that the currency of a particular foreign
country may suffer a substantial decline against the U.S. dollar, the
Fund would be able to enter into a Forward Contract to sell foreign
currency for a fixed U.S. dollar amount approximating the value of
some or all of the Fund's portfolio securities denominated in such
foreign currency.
As to the first circumstance, when the Fund enters into a trade for
the purchase or sale of a security denominated in a foreign currency, it
may be desirable to establish (lock in) the U.S. dollar cost or proceeds.
By entering into Forward Contracts in U.S. dollars for the purchase or sale
of a foreign currency involved in an underlying security transaction, the
Fund will be able to protect itself against a possible loss between trade
and settlement dates resulting from the adverse change in the relationship
between the U.S. dollar and the subject foreign currency.
Under the second circumstance, when the Manager believes that the
currency of a particular country may suffer a substantial decline, the Fund
could enter into a Forward Contract to sell for a fixed dollar amount the
amount in foreign currencies approximating the value of some or all of its
portfolio securities denominated in such foreign currency. The Fund will
place cash or liquid equity or debt securities in a separate account with
its Custodian in an amount equal to the value of the Forward Contracts
entered into under the second circumstance. If the value of the securities
placed in the separate account declines, additional cash or securities will
be placed in the account on a daily basis so that the value of the account
equals the amount of the Fund's commitments with respect to such Forward
Contracts.
The precise matching of Forward Contracts in the amounts and values of
securities involved would not generally be possible since the future values
of such foreign currencies will change as a consequence of market movements
in the values of those securities between the date the Forward Contract is
entered into and the date it matures. The projection of short-term
currency market movements is extremely difficult, and the successful
execution of short-term hedging strategy is highly uncertain. The Manager
does not intend to enter into such Forward Contracts on a regular basis.
Normally, consideration of the prospect for currency parities will be
incorporated into the long-term investment decisions made with respect to
overall diversification strategies. However, the Manager believes that it
is important to have flexibility to enter into such Forward Contracts when
it determines that the Fund's best interests may be served.
Generally, the Fund will not enter into a Forward Contract with a term
of greater than one year. At the maturity of the Forward Contract, the
Fund may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate the
obligation to deliver the foreign currency by purchasing an "offsetting"
Forward Contract with the same currency trader obligating the Fund to
purchase, on the same maturity date, the same amount of the foreign
currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the Forward Contract.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such purchase)
if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is made to sell
the security and make delivery of the foreign currency the Fund is
obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, it will incur a gain or loss (as described below)
to the extent that there has been movement in Forward Contract prices. If
it engages in an offsetting transaction, it may subsequently enter into a
new Forward Contract to sell the foreign currency. Should forward prices
decline during the period between the Fund's entering into a Forward
Contract for the sale of a foreign currency and the date it enters into an
offsetting Forward Contract for the purchase of the foreign currency, the
Fund will realize a gain to the extent the price of the currency it has
agreed to sell exceeds the price of the currency it agreed to purchase.
Should forward prices increase, it will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
It should be realized that this method of attempting to protect the
value of the Fund's portfolio securities against a decline in the value of
a currency does not eliminate fluctuations in the underlying prices of the
securities. It simply establishes a rate of exchange which one can achieve
at some future point in time. Additionally, although Forward Contracts
tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gains
which might result should the value of such currency increase. The Fund
will enter into foreign forward currency exchange contracts only for
hedging purposes and has made an undertaking to a State Securities
Commission to this effect.
Investment in Warrants
The Fund may not invest more than 2% of its net 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 basically are options to purchase equity
securities at specific prices valid for a specific period of time. The
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.
Investment in Unseasoned Issuers
In order to comply with the regulations of certain states, the Fund
will not purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, if
the value of its investment in such securities will exceed 5% of its total
assets.
U.S. Government Securities
U.S. Government Securities include Treasury Bills which mature within
one year of the date they are issued, Treasury Notes which have maturities
of one to ten years and Treasury Bonds which generally have maturities of
more than 10 years. All such Treasury securities are backed by the full
faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing
Administration, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Farm Credit Banks, Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Among the U.S. Government Securities that the Fund will purchase are
"mortgage-backed securities" of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Association
("Freddie Mac") and the Federal National Mortgage Association ("Fannie
Mae"). These mortgage-backed securities include "pass-through" securities
and "participation certificates"; both are similar, representing 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 interests in the pool. Thus, the 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. Another type of
mortgage-backed security is the "collateralized mortgage obligation," which
is similar to a conventional bond (in that it has more regular principal
and interest payments than pass-through securities and participation
certificates) and is secured by groups of individual mortgages. Timely
payment of principal and interest on Ginnie Mae pass-throughs is guaranteed
by the full faith and credit of the United States. Freddie Mac and Fannie
Mae are both instrumentalities of the U.S. Government, but their
obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this paragraph could be adversely
affected by actions of the U.S. Government to tighten the availability of
its credit.
The value of the U.S. Government Securities and other debt securities
in which the Fund may invest will fluctuate depending in large part on
changes in prevailing interest rates. If these rates go up after the Fund
buys a security, its value may go down; if these rates go down, its value
may go up. Changes in value and yield based on changes in prevailing
interest rates may have different effects on short-term debt obligations
than on long-term obligations. Long-term obligations (which often have
higher yields) may fluctuate in value more than short-term ones. The Fund
has no policy limiting the maturity of the U.S. Government Securities or
other debt securities in which it may invest.
Investments in Precious Metals
The ownership of precious metals will 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 will allow the Fund to invest
in platinum without the risks associated with owning shares of South
African companies engaged in the production of platinum. While the Fund is
authorized to invest in South African issuers, investments in South Africa
are subject to the risks associated with the unsettled political and social
conditions prevailing in that country and neighboring countries.
Ownership of gold, silver and platinum may be prohibited by any one or
more of the states in which the Fund is sold. In the event that any state
prohibits such investment, the Fund may elect not to make such investments.
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.
Put and Call 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" 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
automatic quotation system of the National Association of Securities
Dealers, Inc. ("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" (see
below). The Fund may purchase puts as to related investments it owns
("protective puts") or as to related investments it does not own
("nonprotective puts"). Optional delivery standby commitments are entered
into by sellers (other than broker-dealers) of U.S. Government Securities
as an inducement to the Fund to purchase such securities and give the Fund
the right to sell them back to the seller on specified terms. They are
thus a form of "protective puts." However, unlike exchange listed puts,
the Fund must rely on the creditworthiness of the seller, which is
evaluated by the Manager should the Fund exercise its right to make the
delivery and sale. These investments and exchange listed puts are
accounted for in the same manner. These investments will be valued at fair
value in good faith as determined under procedures established by and under
the general supervision and responsibility of the Fund's Board of
Directors.
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 which may not be changed
unless shareholders vote to change them. 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 Fund has also undertaken
to a State Securities Commission that it will write puts only when it is
willing to purchase the underlying security at the exercise price.
The Fund may write options for the purpose of increasing its income by
receiving premiums from the purchases of the options. The Fund may purchase
puts to protect against major price declines in the value of its portfolio
securities. The Fund may purchase calls to take advantage of an expected
rise in the market value of securities it does not hold in its portfolio
(or in a "closing purchase transaction" as discussed below).
When the Fund writes a call, it receives a premium and agrees to sell
the related investments to a purchaser of a call during the call period
(usually not more than 9 months) at a fixed exercise price (which may
differ from the market price of the related investments) regardless of
market price changes during the call period. If a call is exercised, the
Fund foregoes any gain from an increase in the market price over the
exercise price.
To terminate its obligation on a call which it has written, the Fund
may purchase a call in a "closing purchase transaction." A profit or loss
will be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the price of
the call purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the related investments and the
premium received.
When the Fund buys a call, it pays a premium and has the right to buy
the related investments from a seller of a call during the call period at a
fixed exercise price. The Fund benefits only if the market price of the
related investments is above the call price during the call period and the
call is either exercised or sold at a profit. If the call is not exercised
or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the related investments.
When the Fund buys a put, it pays a premium and has the right to sell
the related investments to a seller of a put during the put period at a
fixed exercise price. Buying a protective put (as defined above) permits
the Fund to protect itself during the put period against a decline in the
value of the related investments below the exercise price by selling them
through the exercise of the put. Buying a nonprotective put (as defined
above) permits the Fund, if the market price of the related investments is
below the put price during the put period, either to resell the put or to
buy the related investments and sell them at the exercise price. If the
market price of the related investments is above the exercise price and as
a result, the put is not exercised or resold (whether or not at a profit),
the put will become worthless at its expiration date.
When the Fund writes a put, it receives a premium and agrees to
purchase the related investments from a purchaser of a put during the put
period at a fixed exercise price (which may differ from the market price of
the related investments) regardless of market price changes during the put
period. If the put is exercised, the Fund must purchase the related
investments at the exercise price, regardless of how much the market price
of the related investments has declined below the exercise price. The
Fund's cost of purchasing the investments will be adjusted by the amount of
the premium it has received.
To terminate its obligation on a put which it has written, the Fund
may purchase a put in a "closing purchase transaction." (As discussed
above, the Fund may also purchase puts other than as part of such closing
transactions.) A profit or loss will be realized depending on the amount
of option transaction costs and whether the premium previously received is
more or less than the cost of the put purchased. A profit will also be
realized if the put lapses unexercised because the Fund retains the premium
received.
When the Fund writes a put it will, until it enters into a closing
purchase transaction as to that put, segregate and maintain designated cash
or readily marketable assets adequate to purchase the related investments
should the put be exercised.
An option position may be closed out only on an exchange which
provides a secondary market for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's put and call activities may affect its turnover rate
and brokerage commission payments. The exercise of calls or puts written
by the Fund may cause it to sell or purchase related investments, thus
adversely increasing its turnover rate in a manner beyond its control. The
exercise of puts 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 the Fund to sell the related
investments for reasons which would not exist in the absence of the put.
Holding a nonprotective put might cause the purchase of the related
investments to permit the Fund to exercise the put. The Fund will pay a
brokerage commission each time it buys or sells a put or call or buys or
sells an underlying investment in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to
direct purchases or sales.
The Fund's custodian bank, or a securities depository acting for it,
will act as the Fund's escrow agent as to the related investments on which
the Fund has written calls, or as to other assets acceptable for such
escrow, so that pursuant to the rules of the Option Clearing Corporation
and certain exchanges, no margin deposit will be required of the Fund on
such calls. Until the related investments or other investments held in
escrow are released from escrow, they cannot be sold by the Fund; this
release will take place on the expiration of the call or the Fund's
entering into a closing purchase transaction.
Option premiums paid to control an amount of related investments are
small in relation to the market value of related investments and
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in debt options will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. Markets for options on debt instruments and options on futures
contracts are in their initial stages so it is not possible to predict the
amount of trading interest which may exist in debt options or whether
viable exchange markets will develop or continue over time.
As indicated under "Taxes," to continue to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended
(the "Code"), the Fund must derive less than 30% of its gross income from
the disposition of certain investments held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments held for less than three months, whether or not they
were purchased on the exercise of a call held by the Fund or a put written
by the Fund; (ii) the writing of calls on investments held for less than
three months; (iii) the writing or purchasing of puts or calls which expire
in less than three months; (iv) effecting closing transactions with respect
to puts or calls written or purchased less than three months previously;
and (v) exercising puts or calls held by the Fund for less than three
months.
Futures Contracts
The Fund may engage in buying and selling interest rate futures
contracts, but only those relating to U.S. Government Securities
("Government Securities Futures" or "Futures"). This limitation of the
Fund's engaging in interest rate futures contracts to those relating to
U.S. Government Securities is a fundamental policy which may only be
changed by shareholders. The Fund has no other fundamental policies as to
its use of futures contracts and thus no fundamental policy as to a
percentage limit thereon; however, see below for limitations relating to
the Commodity Futures Trading Commission ("CFTC").
At the present time, the U.S. Government Securities to which
Government Securities Futures relate are long-term U.S. Treasury Bonds,
Treasury Notes, Government National Mortgage Association modified pass-
through mortgage-backed securities and three-month U.S. Treasury Bills.
See "Investment Objective and Policies" for further information as to these
securities.
The Fund will not use Government Securities Futures or puts and calls
related thereto for speculation but only to attempt to hedge (i.e.,
protect) against future changes in interest rates which might otherwise
adversely affect the value of the U.S. Government Securities held in the
Fund's portfolio. Such adverse effects could occur because either (i) the
value of the Fund's U.S. Government Securities declines due to a rise in
interest rates; or (ii) the Fund's U.S. Government Securities or cash are
not fully included in, i.e., do not participate in, an increase in value in
long-term U.S. Government Securities due to a decline in interest rates at
times when the Fund is not fully invested in long-term U.S. Government
Securities.
The "sale" of a Government Securities Future by the Fund means the
acquisition by the Fund of an obligation to deliver the related U.S.
Government Securities (i.e., those called for by the contract) at a
specified price on a specified date. The "purchase" of a Government
Securities Future by the Fund means the acquisition by the Fund of an
obligation to acquire the related U.S. Government Securities at a specified
price on a specified date.
Unlike when the Fund purchases or sells a U.S. Government Security, no
price is paid or received by the Fund upon the purchase or sale of a
Government Securities Future. Initially, the Fund will be required to
deposit with the futures commission merchant (the "broker") an amount of
cash or U.S. Treasury Bills equal to a varying specified percentage of the
contract amount. This amount is known as initial margin. Cash held in the
margin account is not income producing. Subsequent payments, called
variation margin, to and from the broker, will be made on a daily basis as
the price of the underlying U.S. Government Securities fluctuates making
the Government Securities Future more or less valuable, a process known as
mark to the market. Margin deposits are also required in connection with
the sale by the Fund of puts or calls on Government Securities Futures.
Changes in variation margin are recorded by the Fund as unrealized gains or
losses. Initial margin payments will be deposited in the Fund's custodian
bank in an account registered in the broker's name; access to the assets in
that account may be made by the broker only under specified conditions. At
any time prior to expiration of the Government Securities Future, the Fund
may elect to close the position by taking an opposite position which will
operate to terminate the Fund's position in the Government Securities
Future. A final determination of variation margin is then made, additional
cash is required to be paid by or released to the Fund and the Fund
realizes a loss or gain. Although Government Securities Futures by their
terms call for the actual delivery or acquisition of the related U.S.
Government Securities, in most cases the contractual obligation is so
fulfilled without having to make or take delivery of the related U.S.
Government Securities. The Fund does not intend to make or take delivery
of these securities. All transactions in the futures markets, including
transactions in Government Securities Futures, are made, offset or
fulfilled through a clearing house associated with the exchange on which
the contracts are traded. Although the Fund intends to buy and sell
Government Securities Futures only on exchanges where there appears to be
an active secondary market, there is no assurance that a liquid secondary
market will exist for any particular Government Securities Future at any
particular time. In such event, it may not be possible to close a futures
position.
One risk in employing Government Securities Futures to attempt to
protect against the price volatility of the U.S. Government Securities held
in the Fund's portfolio is the prospect that the prices of Government
Securities Futures will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's U.S. Government Securities. For
a hedge to be completely effective, the price change of the hedging
instrument should equal the price change of the security being hedged.
Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is
being hedged. The Manager will attempt to create a closely correlated
hedge but hedging activity may not be completely successful in eliminating
market value fluctuation. The ordinary spreads between prices in the cash
and futures markets, due to differences in the natures of those markets,
are subject to distortions. A discussion of some factors which may create
such distortions follows. 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 the Manager may still not
result in a successful transaction.
Another risk is that the Manager would be incorrect in the
expectations as to the extent of various interest rate movements
or the time span within which the movements take place. For example, if
the Fund sold a Government Securities Future in anticipation of an increase
in interest rates, and then interest rates went down instead, the Fund
would lose money on the sale.
The Fund will deposit in a segregated account with its custodian bank
high-quality debt obligations maturing in one year or less, or cash, in an
amount equal to the fluctuating market value of long futures contracts it
has purchased less any margin deposited on its long position. It may hold
cash or acquire such debt obligations for the purpose of making these
deposits.
The use of Futures and options thereon to attempt to protect against
the market risk of a decline in the value of portfolio securities is
referred to as having a "short futures position." The use of Government
Securities Futures and options thereon to attempt to protect against the
risk that the Fund might not be fully invested to the extent permissible at
a time when the value of these securities is increasing due to declining
interest rates is referred to as having a "long futures position." The
Fund must operate within certain restrictions as to its long and short
positions in Government Securities Futures and options thereon under a rule
(the "CFTC Rule") adopted by the Commodity Futures Trading Commission (the
"CFTC") under the Commodity Exchange Act (the "CEA") to be eligible for the
exclusion provided by the CFTC Rule from registration by the Fund with the
CFTC as a "commodity pool operator" (as defined under the CEA), and must
represent to the CFTC that it will operate within such restrictions. Under
these restrictions the Fund will not, as to any positions, whether long,
short or a combination thereof, enter into Government Securities Futures
and options thereon for which the aggregate initial margins and premiums
exceed 5% of the fair market value of the Fund's assets after taking into
account unrealized profits and losses on options it has entered into; in
the case of an option that is "in-the-money" (as defined under the CEA) the
"in-the-money" amount may be excluded in computing such 5%. (In general a
call option on a Future is "in-the-money" if the value of the future
exceeds the strike, i.e., exercise, price of the call; a put option on a
future is "in-the-money" if the value of the future which is the subject of
the put is exceeded by the strike price of the put.) Under the
restrictions, the Fund also must, as to its short positions, use Government
Securities Futures and options thereon solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions under
the CEA; see the third paragraph under "Futures Contracts" as to the
meaning of "hedging" in the case of the Fund. As to its long positions
which are used as part of the Fund's portfolio strategy and are incidental
to the Fund's activities in the underlying cash market, the "underlying
commodity value" (see below) of the Fund's Government Securities Futures
and options thereon must not exceed the sum of (i) cash set aside in an
identifiable manner, or short-term U.S. debt obligations or other U.S.
dollar-denominated high-quality short-term money market instruments so set
aside, plus any funds deposited as margin; (ii) cash proceeds from existing
investments due in 30 days, and (iii) accrued profits held at the futures
commission merchant. (There is described above the segregated accounts
which the Fund must maintain with its custodian bank as to its option and
futures activities due to SEC requirements; the Fund will, as to its long
positions, be required to abide by the more restrictive of these SEC and
CFTC requirements.) The "underlying commodity value" of a future is
computed by multiplying the size (dollar amount) of the future by the daily
settlement price of the future. For an option on a future that value is
the underlying commodity value of the future underlying the option.
The Fund has no fundamental policy setting a percentage limitation on
the purchase and sale of Futures; see, however, the CFTC limitation
discussed above.
When-Issued and Delayed Delivery Transactions
The Fund may also purchase U.S. Government Securities on a when-issued
or delayed delivery basis or sell them on a delayed delivery basis; their
value may be less when delivered than the purchase price paid. 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 is 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. The U.S. Government Securities
so purchased by the Fund are subject to market fluctuation; their value may
be less when delivered than the purchase price paid. No interest accrues
to the Fund until delivery and payment is completed. When the Fund makes a
commitment to purchase securities on a when-issued or delayed delivery
basis the Fund will record the transaction and thereafter reflect the value
of the securities in determining its net asset value per share. The U.S.
Government Securities sold by the Fund on a delayed delivery basis are also
subject to market fluctuation; their value when the Fund delivers them may
be more than the purchase price the Fund receives. When the Fund makes a
commitment to sell securities on a delayed delivery basis, it will record
the transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily, the Fund purchases U.S. Government Securities on a when-
issued or delayed delivery basis with the intention of actually taking
delivery of the securities. However, before the securities are delivered
to the Fund and before it has paid for them, (the "settlement date") the
Fund could sell the securities if the Manager decided it was advisable to
do so for investment reasons. The Fund will hold aside or segregate cash
or other U.S. Government Securities at least equal to the amount it will
have to pay on the settlement date; these other U.S. Government Securities
will be sold at or before the settlement date. There are no percentage
limitations on the Fund's right to buy U.S. Government Securities on a
when-issued basis.
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. The market for high-yield, high-risk debt securities is
relatively new and much of its growth paralleled a long economic expansion,
during which this market involved a significant increase in the use of
high-yield debt securities to fund highly leveraged corporate acquisitions
and restructurings. Thereafter, this market was affected by a relatively
high percentage of defaults with respect to high-yield securities as
compared with higher rated securities. An economic downturn or increase in
interest rates is likely to have a greater negative effect on this market
and the value of high-yield debt securities, if any, in the Fund's
portfolio.
Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments.
Debt securities with longer maturities, which may have higher yields, may
increase or decrease in value more than debt securities with shorter
maturities. Market prices of high-yield debt securities structured as zero
coupon or pay-in-kind securities are affected to a greater extent by
interest rate changes and may be more volatile than securities which pay
interest periodically and in cash. Where it deems it appropriate and in
the best interests of Fund shareholders, the Fund may incur additional
expenses to seek recovery on a debt security on which the issuer has
defaulted and to pursue litigation to protect the interests of security
holders of its portfolio companies.
Because the market for lower rated securities may be thinner and less
active than for higher rated securities, there may be market price
volatility for these securities and limited liquidity in the resale market.
If market quotations are not readily available for the Fund's lower rated
or unrated securities, these securities will be valued by a method that the
Fund's Board of Directors believes accurately reflects fair value.
Valuation becomes more difficult and judgment plays a greater role in
valuing high-yield debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with
using credit ratings. Credit ratings evaluate the safety of principal and
interest payments, not market value risk. Credit ratings of individual
securities may change from time to time, and the Fund may retain a
portfolio security whose rating has been changed.
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 which redeem their
shares. The Fund can buy shares of investment companies which do
not redeem their shares if it does so in a regular transaction in
the open market and then does not have more than one tenth (i.e.,
10%) of its total assets in these shares; however, the Fund does
not have any current intent to invest more than 5% of its assets
in such securities. The Fund may also buy these shares as part of
a merger or consolidation. 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;
(iv) Make loans other than certain limited types of loans; the Fund can
also buy debt securities which 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.
Restricted securities are securities which are subject to legal or
contractual restrictions on resale;
(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 was 64.89% for the
fiscal year ended December 31, 1994 and 84.00% for the fiscal year ended
December 31, 1993. 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 Waddell & Reed Investment Management
Company, a wholly-owned subsidiary of Waddell & Reed, Inc. Under the
Management Agreement, the Manager is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of
Waddell & Reed, Inc. and the Manager is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for transfer
agency services ("Shareholder Servicing Agreement") and a separate
agreement for accounting services ("Accounting Services Agreement") with
the Fund. The Management Agreement contains detailed provisions as to the
matters to be considered by the Fund's Directors prior to approving any
Shareholder Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company. United Investors Management Company is a wholly-owned subsidiary
of Torchmark Corporation. Torchmark Corporation is a publicly held
company. The address of Torchmark Corporation and United Investors
Management Company is 2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment
manager to each of the registered investment companies in the United Group
of Mutual Funds, 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 the Manager. The Manager has also served as
investment manager for Waddell & Reed Funds, Inc. since its inception in
September 1992, Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. since they each commenced operations in
February 1993 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 of
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 Directors
without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and the Agent, the Agent provides the Fund with bookkeeping and accounting
services and assistance, including maintenance of the Fund's records,
pricing of the Fund's shares, and preparation of prospectuses for existing
shareholders, proxy statements and certain reports. A new Accounting
Services Agreement, or amendments to an existing one, may be approved by
the Fund's Directors without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for the Manager's management services,
the Fund pays the Manager a fee as described in the Prospectus. Prior to
the above-described assignment from Waddell & Reed, Inc. to Waddell & Reed
Investment Management Company, all fees were paid to Waddell & Reed, Inc.
The management fees accrued by the Fund for the fiscal years ended
December 31, 1994, 1993 and 1992 were $312,911, $268,796 and $244,902,
respectively. For purposes of calculating the daily fee the Fund does not
include money owed to it by Waddell & Reed, Inc. for shares which it has
sold but not yet paid to the Fund. The Fund accrues and pays this fee
daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account 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, was paid in that month. It
also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs, microfilm and storage costs for
certain documents; forms, printing and mailing costs; and costs of legal
and special services not provided by Waddell & Reed, Inc., the Manager or
the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a fee
for accounting services as described in the Prospectus. The Fund paid the
Agent fees in the amount of $20,000 for each of the fiscal years ended
December 31, 1994, 1993 and 1992.
The State of California imposes limits on the amount of certain
expenses the Fund can pay. If these expense limitations are exceeded, the
Manager 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, 1994, 1993 and 1992, no expense
reimbursement by the Manager was required.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the
Manager and the Agent, respectively, pay all of their own expenses in
providing these services. Amounts paid by the Fund under the Shareholder
Servicing Agreement are described above. Waddell & Reed, Inc. and
affiliates pay the Fund's Directors and officers who are affiliated with
the Manager and its affiliates. The Fund pays the fees and expenses of the
Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the
Management Agreement, Shareholder Servicing Agreement and Accounting
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 the
fiscal years ended December 31, 1994, 1993 and 1992 were $153,080, $180,359
and $87,567, respectively. The amounts retained by Waddell & Reed, Inc.
for these same periods were $64,858, $79,879 and $39,053, respectively.
A major portion of the sales charge 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 (the "Plan") adopted by the Fund pursuant to Rule
12b-1 under the Investment Company Act of 1940, the Fund may pay Waddell &
Reed, Inc., the principal underwriter for the Fund, a fee not to exceed
.25% of the Fund's average annual net assets, paid monthly, to reimburse
Waddell & Reed, Inc. for its costs and expenses in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Plan and a related Service Agreement between the Fund and
Waddell & Reed, Inc. contemplate that Waddell & Reed, Inc. may be
reimbursed for amounts it expends in compensating, training and supporting
registered sales representatives, sales managers and/or other appropriate
personnel in providing personal services to Fund shareholders and/or
maintaining shareholder accounts; increasing services provided to Fund
shareholders by office personnel located at field sales offices; engaging
in other activities useful in providing personal service to Fund
shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers, and other third parties, who may regularly
sell Fund shares for providing shareholder services and/or maintaining
shareholder accounts. Service fees in the amount of $60,162 were paid (or
accrued) by the Fund for the fiscal year ended December 31, 1994.
The Plan and the Service Agreement were approved by the Fund's Board
of Directors, including the Directors who are not interested persons of the
Fund and who have no direct or indirect financial interest in the
operations of the Plan or any agreement referred to in the Plan (hereafter,
the "Plan Directors"). The Plan was also approved by shareholders of the
Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc.
will provide to the Directors of the Fund at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue
in effect only so long as it is approved at least annually, and any
material amendments thereto will be effective only if approved, by the
Directors including the Plan Directors acting in person at a meeting called
for that purpose, (iii) amounts to be paid by the Fund under the Plan may
not be materially increased without the vote of the holders of a majority
of the outstanding shares of the Fund, and (iv) while the Plan remains in
effect, the selection and nomination of the Directors who are Plan
Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In
general, it is responsible for holding the Fund's cash and securities. If
Fund assets are held in foreign countries, the Fund will comply with Rule
17f-5 under the Investment Company Act of 1940. Price Waterhouse LLP,
Kansas City, Missouri, the Fund's independent accountants, audits the
Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the Fund is the value
of the Fund's assets, less what it owes, divided by the total number of
shares outstanding. For example, if on a particular day the Fund owned
securities worth $100 and had cash of $15, the total value of the assets
would be $115. If it owed $5, the net asset value would be $110 ($115
minus $5). If it had 11 shares outstanding, the net asset value of one
share would be $10 ($110 divided by 11).
Shares of the Fund are sold at their next determined net asset value
plus the sales charge described in the Prospectus. The price makeup as of
December 31, 1994 was as follows:
Net asset value per share (net assets divided by
capital shares outstanding) ..................... $8.19
Add: selling commission (5.75% of offering price).. .50
----
Maximum offering price per share (net asset value
per share divided by 94.25%) .................... $8.69
====
The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number
of shares you receive for your purchase depends on the next offering price
after Waddell & Reed, Inc. receives and accepts your order at its principal
business office at the address shown on the cover of this SAI. You will be
sent a confirmation after your purchase which will indicate how many shares
you have purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Fund may determine to discontinue offering Fund shares for purchase.
The net asset value per share and offering price are ordinarily
computed once daily on each day that the New York Stock Exchange is open
for trading as of the later of the close of the regular session of the New
York Stock Exchange (ordinarily 4:00 p.m. Eastern time) or the close of the
regular session of any such domestic securities or commodities exchange on
which an option or future held by the Fund is traded. The New York Stock
Exchange annually announces the days on which it will not be open for
trading. The most recent announcement indicates that the New York Stock
Exchange will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the New
York Stock Exchange may close on other days. The net asset value will
change every business day, since the 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
which 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 (National Association of Securities Dealers
Automated Quotations). 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 which 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 which 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.
Minimum Initial and Subsequent Investments
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 the Manager, 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."
Reduced Sales Charges
Account Grouping
Large purchases are subject to lower sales charges. The schedule of
sales charges appears in the Prospectus. For the purpose of taking
advantage of the lower sales charges available for large purchases, a
purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with
purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse
in a Uniform Gift to Minors Act ("UGMA")or Uniform Transfers to Minors
Act account;
6. Purchases by that individual or his or her spouse for his or her
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 a UGMA for grandson A; Grandmother has an
account in her own name; A's father has an account in his own
name; the UGMA 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 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 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 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 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 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 shares are held in any account and an additional purchase is made
in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the
existing account as of the date the new purchase is accepted by Waddell &
Reed, Inc. for the purpose of determining the availability of a reduced
sales charge.
Example: H is a current shareholder who invested in the Fund three years
ago. His account has a net asset value of $80,000. His wife, W,
now wishes to invest $20,000 in 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 is also
available under a Statement of Intention. By signing a Statement of
Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount
which is sufficient to qualify for a reduced sales charge. The 13-month
period begins on the date the first purchase made under the Statement is
accepted by Waddell & Reed, Inc.. Each purchase made from time to time
under the Statement is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge
applicable to all purchases made under the terms of the Statement will be
the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in
order to qualify for a reduced sales charge under a Statement of Intention,
the investor's Rights of Accumulation (see above) will be taken into
account; that is, shares already held in the same account in which the
purchase is being made or in any account eligible for grouping with that
account, as described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest
in his own name a dollar amount sufficient to entitle him to
purchase shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the shares held under the IRA
in the Fund have a net asset value as of the date the Statement
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
$10,000; H needs to invest $75,000 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 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 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. An amount
equal to 5% of the purchase required under the Statement will be held "in
escrow." If a purchaser does not, during the period covered by the
Statement, invest the amount required to qualify for the reduced sales
charge under the terms of the Statement, he or she will be responsible for
payment of the sales charge applicable to the amount actually invested.
The additional sales charge owed on purchases made under a Statement which
is not completed will be collected by redeeming part of the shares
purchased under the Statement and held "in escrow" unless the purchaser
makes payment of this amount to Waddell & Reed, Inc. within 20 days of
Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower
than that available under the Statement of Intention, the lower sales
charge will apply.
A Statement of Intention does not bind the purchaser to buy, or
Waddell & Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement
of Intention, the initial investment must be at least $200,000, and the
value of any shares redeemed during the 13-month period which were acquired
under the Statement will be deducted in computing the aggregate purchases
under the Statement.
Statements of Intention are not available for purchases made under a
simplified employee pension plan ("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 apply to purchases of
any of the funds in the United Group which are subject to a sales charge.
A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as
an investment in the Fund for the purpose of determining the applicable
sales charge. The following funds in the United Group are subject to a
maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United
Retirement Shares, Inc., United High Income Fund, Inc., United New Concepts
Fund, Inc., United Gold & Government Fund, Inc., United High Income Fund
II, Inc. and United Asset Strategy Fund, Inc. The following funds in the
United Group are subject to a "reduced" sales charge as described in the
prospectus of each fund: United Municipal Bond Fund, Inc., United
Government Securities Fund, Inc. and United Municipal High Income Fund,
Inc. For the purposes of obtaining the lower sales charge which applies to
large purchases, purchases in a fund in the United Group which is subject
to a full sales charge may not be grouped with purchases in a fund in the
United Group which is subject to a reduced sales charge; conversely,
purchases made in a fund with a reduced sales charge may not be grouped or
combined with purchases of a fund which is subject to a full sales
charge.
United Cash Management, Inc. is not subject to a sales charge.
Purchases in that fund are not eligible for grouping with purchases in any
other fund.
Net Asset Value Purchases
As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell &
Reed, Inc., employees of their affiliates, sales representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouse's and
parents of each such Director, officer, employee and sales representative.
"Child" includes stepchild; "parent" includes stepparent. Purchases 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. "Employees" includes retired
employees. A retired employee is an individual separated from service from
Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Sales representatives" includes retired sales representatives.
A "retired sales representative" is any sales representative who was, at
the time of separation from service from Waddell & Reed, Inc., a Senior
Account Representative. A custodian under the Uniform Gifts (or Transfers)
to Minors Act purchasing for the child or grandchild of any employee or
sales representative may purchase at net asset value whether or not the
custodian himself is an eligible purchaser.
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
As described herein and in the Prospectus, there are a number of
instances in which the Fund's shares are sold or issued on a basis other
than the maximum public offering price, that is, the net asset value plus
the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases, whether made at one time or over a
period of time as under a Statement of Intention or right of accumulation.
See the table of sales charges in the Prospectus. The reasons for these
quantity discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts;
(ii) certain quantity discounts are required by rules of the National
Association of Securities Dealers, Inc. (as are elimination of sales
charges on the reinvestment of dividends and 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 are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares
exchanged. Sales without sales charge are permitted to Directors, officers
and certain others due to reduced or eliminated selling expenses and since
such sales may aid in the development of a sound employee organization,
encourage incentive, responsibility and interest in the United Group and an
identification with its aims and policies. Limited reinvestments of
redemptions at no sales charge are permitted to attempt to protect against
mistaken or not fully informed redemption decisions. Shares may be issued
at no sales charge in plans of reorganization due to reduced or eliminated
sales expenses and since, in some cases, such issuance is exempted by the
Investment Company Act of 1940 from the otherwise applicable restrictions
as to what sales charge must be imposed. In no case in which there is a
reduced or eliminated sales charge are the interests of existing
shareholders adversely affected since, in each case, the Fund receives the
net asset value per share of all shares sold or issued.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly,
quarterly, semiannual or annual payments by redeeming shares on a regular
basis through the Flexible Withdrawal Service (the "Service"). It is
available not only for Fund shares but also for shares of any of the funds
in the United Group. It would be a disadvantage to an investor to make
additional purchases of shares while a withdrawal program is in effect as
this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
shares which you still own of any of the funds in the United Group; or, you
must own shares having a value of at least $10,000. The value for this
purpose is not the net asset value but the value at the offering price,
i.e., the net asset value plus the sales charge.
To start the Service, you must fill out a form (available from Waddell
& Reed, Inc.) advising Waddell & Reed, Inc. how you want your shares
redeemed to make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of
$50 or more;
Second. To get a monthly payment, which will change each month, equal
to one-twelfth of a percentage of the value of the shares in the Account;
you fix the percentage; or
Third. To get a monthly or quarterly payment, which will change each
month or quarter, by redeeming a number of shares fixed by you (at least
five shares).
Shares are redeemed on the 20th day of the month in which the payment
is to be made, or on the prior business day if the 20th is not a business
day. Payments are made within five days of the redemption.
Retirement Plan Accounts may be subject to a fee imposed by the
plan custodian for use of their service.
If you have a share certificate for the shares you want to make
available for the Service, you must enclose the certificate with the form
initiating the Service.
The dividends and distributions on shares you have made available
for the Service are reinvested in additional shares. All payments are made
by redeeming shares, which may involve a gain or loss for tax purposes. To
the extent that payments exceed dividends and distributions, the number of
shares you own will decrease. When all of the shares in an account are
redeemed, you will not receive any more 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
Once a sales charge has been paid on 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 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 shares you own in another fund in the United Group
for Fund shares 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. Shares of these funds may be exchanged for Fund
shares 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 shares of United Cash Management, Inc.
automatically exchanged each month into the Fund or any other fund in the
United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must
own shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among different funds in the United
Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange. The
relative values are those next figured after we receive your written
exchange request in good order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified
at any time and any such exchange may not be accepted.
Retirement Plans
For individual taxpayers meeting certain requirements, Waddell & Reed,
Inc. offers four retirement plan arrangements which provide tax deferral
and contribute to retirement assets. All four of them involve investment
in Fund shares (or the shares of certain other funds in the United Group).
First. A self-employed person may set up a plan that is commonly
called a Keogh 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 a maximum of $30,000.
Second. 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 a maximum of $2,000. The
maximum is $2,250 if an investor's spouse has no earned income in a taxable
year. If an investor's spouse has at least $2,000 of earned income in a
taxable year, the maximum is $4,000 ($2,000 for each spouse).
These 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
participates, the 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.
Third. 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 custodial account under
Section 403(b) of the Code.
Fourth. 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.
Waddell & Reed, Inc. also offers to businesses prototype employee
benefit plans qualified under Section 401 of the Code. Investments may be
made in the Fund in accordance with the terms of the plans.
More detailed information about these arrangements is in the
applicable forms which 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 Securities and Exchange
Commission, when the New York Stock Exchange is closed other than for
weekends or holidays, or when trading on the Exchange is restricted.
Payment is made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities. Payment for redemptions
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 Investment Company Act, pursuant to
which it is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege under which, if
you redeem and then decide it was not a good idea, you may reinvest. If
Fund shares are then being offered, you can put all or part of your
redemption payment back into Fund shares without any sales charge at the
net asset value next determined after you have returned the amount. Your
written request to do this must be received within 30 days after your
redemption request was received. You can do this only once as to Fund
shares. You do not use up this privilege by redeeming 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 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., Waddell & Reed Funds, Inc., Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, 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.
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 the
Manager, Waddell & Reed, Inc., Waddell & Reed Services Company, Waddell &
Reed Asset Management Company and Torchmark Distributors, Inc., an
affiliate of Waddell & Reed, Inc.; Vice Chairman of the Board of Directors,
Chief Executive Officer and President of United Investors Management
Company; Vice Chairman of the Board of Directors of Torchmark Corporation;
Director of Southwestern Life Corporation; formerly, partner in Trivest, a
private investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.
HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the
United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc.,
he served in such capacity for the funds in the United Group and TMK/United
Funds, Inc.
DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corp.; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Chairman, Department
of Marketing, Transportation and Tourism, University of Colorado; formerly,
Professor of Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards
Company; formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P.O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law
firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President
of the Fund and each fund in the Fund Complex then in existence. (Mr.
Morgan retired as Chairman of the Board of Directors and President of the
funds in the Fund Complex then in existence on April 30, 1993); formerly,
President, Director and Chief Executive Officer of the Manager and Waddell
& Reed, Inc.; formerly, Chairman of the Board of Directors of Waddell &
Reed Services Company; formerly, Director of Waddell & Reed Asset
Management Company, United Investors Management Company and United
Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Formerly, President and Director of Univest Corporation, a real estate
investment company; formerly, Director of Classified Financial Corp., an
insurance company.
PAUL S. WISE
P.O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund 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 the Manager; President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer of Waddell & Reed, Inc.; Director
and Treasurer of Waddell & Reed Asset Management Company; President,
Director and Treasurer of Waddell & Reed Services Company; Vice President,
Treasurer and Director of Torchmark Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund 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 the
Manager and Waddell & Reed Asset Management Company; Senior Vice President
and Chief Investment Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the
Fund 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 the Manager and Waddell & Reed,
Inc.; Director, Senior Vice President, Secretary and General Counsel of
Waddell & Reed Services Company; Director, Secretary and General Counsel of
Waddell & Reed Asset Management Company; Vice President, Secretary and
General Counsel of Torchmark Distributors, Inc.; formerly, Assistant
General Counsel of the Manager, Waddell & Reed Financial Services, Inc.,
Waddell & Reed, Inc., Waddell & Reed Asset Management Company and Waddell &
Reed Services Company.
Michael L. Avery
Vice President of the Fund; Vice President of the Manager; 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 the Manager 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 the Manager; formerly, Vice President of Waddell
& Reed, Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, four of the Fund's Directors may be
deemed to be "interested persons" as defined in the 1940 Act of its
underwriter, Waddell & Reed, Inc. 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, TMK/United Funds, Inc. and Waddell &
Reed Funds, Inc. pay to each Director a total of $40,000 per year, plus
$1,000 for each meeting of the Board of Directors attended (prior to
January 1, 1995, the fee was $500 for each meeting of the Board of
Directors attended) and $500 for each committee meeting attended which is
not in conjunction with a Board of Directors meeting, other than Directors
who are affiliates of Waddell & Reed, Inc. The fees to the Directors who
receive them are divided among the funds in the United Group, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative size.
The officers are paid by the Manager or its affiliates.
During the Fund's fiscal year ended December 31, 1994, 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 160 0 43,000
Dodds I. Buchanan 160 0 43,000
Jay B. Dillingham 160 0 43,000
John F. Hayes 160 0 43,000
Glendon E. Johnson 160 0 43,000
William T. Morgan 118 0 32,000
Doyle Patterson 160 0 43,000
Frederick Vogel III 160 0 43,000
Paul S. Wise 158 0 42,500
Leslie S. Wright 154 0 41,500
Shareholdings
As of February 28, 1995, all of the Fund's Directors and officers
as a group owned less than 1% of the outstanding shares of the Fund. As of
such date no person owned of record or was known by the Fund to own
beneficially 5% or more of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder 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 its expenses. 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 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
In your application form, you can give instructions that (i) you
want cash for your dividends and distributions, (ii) you want your
dividends and distributions reinvested in Fund shares or (iii) you want
cash for your dividends and want your distributions reinvested in Fund
shares. You can change your instructions at any time. If you give no
instruction, your dividends and distributions will be reinvested in Fund
shares. All reinvestments are at net asset value without any sales charge.
The net asset value used for this purpose is that computed as of the record
date for the dividend or distribution, although this could be changed by
the Directors.
Even if you get dividends and distributions in cash, you can
thereafter reinvest them (or distributions only) in Fund shares at net
asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment.
The reinvestment must be within 45 days after the payment.
TAXES
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 contracts or Forward Contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or Forward Contracts, or (ii) foreign currencies
(or options, futures contracts or Forward Contracts thereon) that are not
directly related to the Fund's principal business of investing in
securities (or in options and futures with respect to securities) ("Short-
Short Limitation"); (3) at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must be represented by
cash and cash items, U.S. Government Securities, securities of other RICs
and other securities that are limited, in respect of any one issuer, to an
amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the outstanding voting securities
of the issuer; and (4) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. Government Securities or the securities of
other RICs) of any one issuer.
Investments in precious metals would have adverse tax consequences for
the Fund 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 shareholders for the year in which that
December 31 falls.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before
the record date for a dividend or distribution, the purchaser will receive
some portion of the purchase price back as a taxable dividend or
distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gains
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
It is the Fund's policy to make sufficient distributions each year
to avoid imposition of the Excise Tax. The Code permits the Fund to defer
into the next calendar year net capital losses incurred between each
November 1 and the end of the current calendar year.
Income from 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.
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, 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 and futures
derived by the Fund with respect to its business of investing in
securities, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options and futures
will be subject to the Short-Short Limitation if they are held for less
than three months. Income from the disposition of foreign currencies 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 and futures beyond the time when it otherwise would be advantageous
to do so, in order for the Fund to continue to qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gain. If the Fund enters into a closing purchase transaction, it
will have a short-term capital gain or loss based on the difference between
the premium it receives for the option it wrote and the premium it pays for
the option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such
an option is exercised and the Fund thus sells the securities subject to
the option, the premium the Fund receives will be added to the exercise
price to determine the gain or loss on the sale. The Fund will not write
so many options that it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which the Fund may invest may
be "section 1256 contracts." Section 1256 contracts held by the Fund at
the end of each taxable year, other than section 1256 contracts that are
part of a "mixed straddle" with respect to which the Fund has made an
election not to have the following rules apply, are "marked-to-market"
(that is, treated as sold for their fair market value) for Federal income
tax purposes, with the result that unrealized gains or losses are treated
as though they were realized. Sixty percent of any net gain or loss
recognized on these deemed sales, and 60% of any net realized gain or loss
from any actual sales of section 1256 contracts, are treated as long-term
capital 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager pursuant to the
Management Agreement is to arrange the purchase and sale of securities for
the portfolio of the Fund. 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, the Manager is
authorized to engage broker-dealers ("brokers") which, in its best judgment
based on all relevant factors, will implement the policy of the Fund to
achieve "best execution" (prompt and reliable execution at the best price
obtainable) for reasonable and competitive commissions. The Manager need
not seek competitive commission bidding but is expected to minimize the
commissions paid to the extent consistent with the interests and policies
of the Fund. Subject to review by the Board of Directors, such policies
include the selection of brokers which provide execution and/or research
services and other services, including pricing or quotation services
directly or through others ("brokerage services") considered by the Manager
to be useful or desirable for its investment management of the Fund and/or
the other funds and accounts over which the Manager or its affiliates have
investment discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers;
(ii) furnishing analyses and reports; or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage services
may be higher than another qualified broker would charge for effecting
comparable transactions if a good faith determination is made by the
Manager that the commission is reasonable in relation to the brokerage
services provided. Subject to the foregoing considerations the Manager may
also consider the willingness of particular brokers and dealers to sell
shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to the Manager or
its affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of the Manager 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 the Manager in making investment management decisions are
used for administration or other non-research purposes, a reasonable
allocation of the cost of the product attributable to its non-research use
is made by the Manager.
Such investment research (which may be supplied by a third party at
the instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the
price of securities held in the Fund's portfolio or being considered for
purchase.
In placing transactions for the Fund's portfolio, the Manager may
consider sales of shares of the Fund and other funds managed by the Manager
and its affiliates as a factor in the selection of brokers to execute
portfolio transactions. The Manager intends to allocate brokerage on the
basis of this factor only if the sale is $2 million or more and there is no
sales charge. This results in the consideration only of sales which by
their nature would not ordinarily be made by Waddell & Reed, Inc.'s direct
sales force and is done in order to prevent the direct sales force from
being disadvantaged by the fact that it cannot participate in Fund
brokerage.
During the Fund's fiscal years ended December 31, 1994, 1993 and
1992, the Fund paid brokerage commissions of $69,862, $136,655 and $97,688,
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 last fiscal year, the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $8,371,587 on which $23,102 in
brokerage commissions were paid. These transactions were allocated to
these broker-dealers by the internal allocation procedures described above.
The Fund, the Manager 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., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, 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 presently has only one kind (class) of shares. Each share has
the same rights to dividends, to vote and to receive assets if the Fund
liquidates (winds up). Each fractional share has the same rights, in
proportion, as a full share. Shares are fully paid and nonassessable when
bought. The Board has the authority to classify unissued shares into one
or more additional classes but it has no intention of doing so.
<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
Statements of Assets and Liabilities
For the year ended December 31, 1994
Statements of Operations
For each of the two years in the period ended December 31, 1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1994
Report of Independent Accountants
Included in Part C:
-------------------
Underwriting Agreement attached hereto as EX-99.B6-ggua
Amended Appendix A to Custodian Agreement dated February 15, 1995
attached hereto as EX-99.B8-GGcaa
Amended Appendix B to Custodian Agreement dated January 1, 1995
attached hereto as EX-99.B8-GGcaa2
Amendment to Service Agreement attached hereto as EX-99.B9-GGsaa
Fund Application attached hereto as EX-99.B9-GGapp
Fund NAV Application attached hereto as EX-99.B9-GGappnav
Consent of Independent Accountants attached hereto as EX-99.B11-
GGconsent
Financial Data Schedule attached hereto as EX-27.B17-GGFDS
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 filed March 18, 1985 as Exhibit (b)(1)
to the initial Registration Statement on Form N-1A*
(2) (a) By-Laws filed March 18, 1985 as Exhibit (b)(2) to the
initial Registration Statement on Form N-1A*
(b) Amendment to By-Laws filed July 28, 1988 as Exhibit
(b)(2)(b) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A*
(c) Amendment to By-Laws filed February 28, 1990 as Exhibit No.
2 on Form N-SAR for the six months ended December 31, 1989*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, filed March 18, 1985 as Exhibit
(b)(1) to the initial Registration Statement on Form N-1A*;
Article I, Article IV and Article VII of the Bylaws of the
Registrant filed March 18, 1985 as Exhibit (b)(2) to the initial
Registration Statement on Form N-1A*
(5) (a) Investment Management Agreement filed June 29, 1990 as
Exhibit (b)(5) to Post-Effective Amendment No. 10 to the
Registration Statement on Form N-1A*
(b) Assignment of Investment Management Agreement filed March 9,
1992 as Exhibit No. (b)(5)(b) on Form SE to Post-Effective
Amendment No. 12 to the Registration Statement on Form N-1A*
(6) Underwriting Agreement
(7) Not applicable
(8) Custodian Agreement filed March 9, 1992 as Exhibit No. (b)(8) on
Form SE to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A*
Amended Appendix A to the Custodian Agreement dated February 15,
1995
Amended Appendix B to the Custodian Agreement dated January 1,
1995
Amendment to the Custodian Agreement dated February 17, 1993
filed March 24, 1993 as Exhibit (b)(8) to Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A*
(9) Shareholder Servicing Agreement filed March 24, 1993 as Exhibit
(b)(9) to Post-Effective Amendment No. 13 to the Registration
Statement on Form N-1A*
Accounting Services Agreement filed February 26, 1991 as Exhibit
No. 2 on Form SE to Form N-SAR for the six months ended December
31, 1990*
Service Agreement filed August 4, 1993 as Exhibit (b)(15) to
Post-Effective Amendment No. 14 to the Registration Statement on
---------------------------------
*Incorporated herein by reference
Form N-1A*
Amendment to Service Agreement
Fund Application
Fund NAV Application
(10) Initial Opinion and Consent filed July 16, 1985 as Exhibit
(b)(11) to Pre-Effective Amendment No. 1 to the initial
Registration Statement on Form N-1A*
(11) Consent of Independent Accountants
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc., filed
July 16, 1985 as Exhibit No. (b)(13) to Pre-Effective Amendment
No. 1 to the initial Registration Statement on Form N-1A*
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
---------------------------------
*Incorporated herein by reference
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.*
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 filed August 4, 1993 as Exhibit (b)(15) to Post-
Effective Amendment No. 14 to the Registration Statement on Form
N-1A*
(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
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 December 31, 1994
-------------- ------------------------------
Capital Stock 12,443
---------------------------------
*Incorporated herein by reference
27. Indemnification
---------------
Reference is made to Section (7)(c) of Article SEVENTH of the Articles
of Incorporation of Registrant, filed March 18, 1985 as Exhibit (b)(1)
to the initial Registration Statement on Form N-1A* and to Article IV
of the Underwriting Agreement filed March 18, 1985 as Exhibit (b)(6)
to the initial Registration Statement*, 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
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.
---------------------------------
*Incorporated herein by reference
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
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).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(b) of the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Overland Park, and
State of Kansas, on the 29th day of March, 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 March 29, 1995
---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director March 29, 1995
---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer March 29, 1995
---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and March 29, 1995
---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director March 29, 1995
---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director March 29, 1995
--------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director March 29, 1995
-------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director March 29, 1995
------------------- ----------------
John F. Haye
/s/Glendon E. Johnson* Director March 29, 1995
------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director March 29, 1995
------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director March 29, 1995
------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director March 29, 1995
------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director March 29, 1995
------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director March 29, 1995
------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
EX-99.B6-GGua
UNDERWRITING AGREEMENT
THIS AGREEMENT, made this 8th day of February, 1995, by and between United
Gold & Government Fund, Inc. (hereinafter the "Company"), a Maryland
corporation, and Waddell & Reed, Inc. (hereinafter "W&R"), a Delaware
corporation;
I. REPRESENTATIONS
A. The Company represents that
1) it is a registered open-end management investment company
(mutual fund), and
2) the shares of each of its classes of shares ("Fund") and of
each sub-class thereof ("Class"), if any, are, as of the date of the
effectiveness of this Agreement as to each such Fund or Class, registered with
the Securities and Exchange Commission ("SEC") and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon.
(As to any Fund or Class not registered with the SEC and qualified or otherwise
authorized for sale in all states of the United States as may be agreed upon,
this Agreement shall become effective as to such Fund or Class upon such
registration and qualification or authorization.)
B. W&R represents that
1) it is a broker-dealer registered with the SEC and is duly
qualified to offer shares of the Company in all states in which the shares are
currently qualified or otherwise authorized for offer for sale;
2) it is a member of the National Association of Securities
Dealers, Inc. ("NASD");
3) it maintains a retail securities and insurance sales
organization consisting in part of a number of representatives authorized under
Federal and state securities laws to solicit as representatives of W&R orders
for Company shares and other securities;
4) it maintains and enforces procedures to enable it to
supervise its representatives and associated persons in accordance with
applicable securities laws, rules and regulations including the Rules of the
NASD; and
5) it maintains and enforces procedures to review for compliance
with applicable securities laws, rules and regulations all sales literature and
promotional materials used by it and authorized to be used by its
representatives in solicitation of orders to buy Company shares, and it files,
when applicable, such literature and materials with the NASD.
II. APPOINTMENT OF UNDERWRITER and OBLIGATIONS
The Company hereby, as applicable, appoints W&R or continues the
appointment of W&R, and W&R, as applicable, agrees to act or continues to act,
as the Company's principal underwriter under the terms and provisions of this
Agreement.
A. Company agrees
1) to use its best efforts to register from time to time under
the Securities Act of 1933 (the "Securities Act") adequate amounts of its shares
for sale by W&R to the public and to qualify or to permit W&R to qualify such
shares for offering to the public in such states as may from time to time be
agreed upon;
2) to immediately advise W&R (i) when any post-effective
amendment to its registration statement or any further amendment or supplement
thereto or any further registration statement or amendment or supplement thereto
becomes effective, (ii) of any request by the SEC for amendments to the
registration statement(s) or any then effective prospectus or for additional
information, (iii) of the issuance by the SEC of any stop-order suspending the
effectiveness of the registration statement or the initiation of any proceedings
for that purpose, and (iv) of the happening of any event which makes untrue any
material statement made in the registration statement or any then effective
prospectus or which, in the opinion of counsel for the Company, requires the
making of a change in the registration statement or any then effective
prospectus in order to make the statements therein not misleading; in case of
the happening at any time of any event which materially affects the Company or
its securities and which should be set forth in a supplement to or an amendment
of any then effective prospectus in order to make the statements therein not
misleading, to prepare and furnish to W&R such amendment or amendments to that
prospectus as will correct the prospectus so that as corrected it will not
contain, or such supplement or supplements to that prospectus which when read in
conjunction with that prospectus will make the combined information not contain
any untrue statement of a material fact or any omission to state any material
fact necessary in order to make the statements in that prospectus not
misleading; if any time the SEC shall issue any stop-order suspending the
effectiveness of the registration statement, to make every reasonable effort to
obtain the prompt lifting of such order; and, before filing any amendment to the
registration statement or to any then effective prospectus, to furnish W&R with
a copy of the proposed amendment;
3) to advise W&R of the net asset value of the shares of each of
its Funds and Classes, as applicable, as often as computed and to furnish to W&R
as soon as practical such information as may be reasonably requested by W&R in
order that it may know all of the facts necessary to sell shares of the Company;
4) to make delivery of its shares subject to the provisions of
its Articles of Incorporation and Bylaws to W&R as ordered by W&R as soon as
reasonably possible after receipt of the orders and against payment of the
consideration to be received by the Company therefor from W&R;
5) to pay or cause to be paid all expenses incident to the
issuance, transfer, registration and delivery of its shares, all taxes in
connection therewith, costs and expenses incident to preparing and filing any
registration statements and prospectuses and any amendments or supplements to a
registration statement or a prospectus, statutory fees incidental to the
registration of additional shares with the SEC, statutory fees and expenses
incurred in connection with any Blue Sky law qualifications undertaken by or at
the request of W&R, and the fees and expenses of the Company's counsel,
accountants or any other experts used in connection with the foregoing; and
6) not without the consent of W&R to offer any of its shares for
sale directly or to any persons or corporations other than W&R, except only
a) the reinvestment of dividends and/or distributions or
their declaration in shares of the Company, in optional form or otherwise;
b) the issuance of additional shares to stock splits or
stock dividends;
c) sale of shares to another investment or securities
holding company in the process of purchasing all or a portion of its assets;
d) in connection with an exchange of shares of the Company
for shares in another investment or securities holding company;
e) the sale of shares to registered unit investment trusts;
or
f) in connection with the exchange of one Fund's shares for
shares of another Fund of the Company.
B. W&R agrees
1) to offer Company shares in such states as may be agreed upon
through its retail account representatives and, at its sole discretion, through
broker-dealers which are members of the NASD on such terms as are not
inconsistent with this Agreement;
2) to order shares from the Company only after it has received a
purchase order therefor;
3) to pay to the Company the net asset value of shares sold
within two business days after the day payment is received by W&R at its
principal place of business from the investor or broker-dealer, or pay the
Company at such other time as may be agreed upon hereafter by the Company and
W&R, or as may be prescribed by law or the Rules of the NASD;
4) in offering shares to comply with the provisions of the
Articles of Incorporation and Bylaws of the Company and with the provisions
stated in its applicable then current prospectus(es);
5) timely to inform the Company of any action or proceeding to
terminate, revoke or suspend W&R's registration as a broker-dealer with the SEC,
membership in the NASD, or authority with any state securities commission to
offer Company shares; and
6) to pay the cost of all sales literature, advertising and
other materials which it may at its discretion use in connection with the sale
of Company shares, including the cost of reports to the shareholders of the
Company in excess of the cost of reports to existing shareholders and the cost
of printing the prospectus(es) furnished to it by the Company.
III. TERMS FOR SALE OF SHARES
A. It is mutually agreed that
1) W&R shall act as principal in all matters relating to
promotion and sale of Company shares, including the preparation and use of all
advertising, sales literature and other promotional materials, and shall make
and enter into all other arrangements, agreements and contracts as principal on
its own account and not as agent for the Company. Title to shares issued and
sold by the Company through W&R shall pass directly from the Company to the
dealer or investor, or shall first pass to W&R as it may from time to time be
determined by W&R and the Company; except provided, however, that W&R may, if so
agreed by W&R and the Company, act as agent of the Company without commission on
repurchase of shares of the Company;
2) certificates for shares shall not be created or delivered by
the Company in any case in which the purchase is pursuant to any provisions of
the Company described in its applicable then current prospectus(es) under the
terms of which certificates are not to be issued to the shareholder. Shares
sold by W&R shall be registered in such name or names and amounts as W&R may
request from time to time, and all shares when so paid for and issued shall be
fully paid and non-assessable;
3) the offering price at which shares of the Company may be sold
by W&R shall include such selling commission as may be applicable to that Class
and as may be fixed from time to time by W&R but shall not be in excess of 8.5
percent of the offering price. W&R shall retain any such sales commission and
may re-allow all or any part of the sales commission to its account
representatives and to selected brokers and dealers who sell shares of the
Company; and
4) W&R may designate, reduce or eliminate its selling
commissions in certain sales or exchanges to the extent described in the
applicable then current prospectus(es) of the Company and in accordance with
Section 22(d) of the Investment Company Act of 1940 and any rules, regulations
or orders of the SEC thereunder.
IV. THE PLAN
A. It is mutually acknowledged that the Company has adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (a
"Plan"), which Plan is applicable to certain shares and that the Company may in
the future adopt Plans applicable to certain Funds and Classes, respectively.
B. With respect to any Fund or Class as to which the Company has
adopted a Plan, pursuant to that Plan, each day the Company shall pay to W&R a
distribution fee and/or a service fee at the maximum rates and under the terms
and conditions set forth in the applicable Plan, as amended from time to time,
or such lesser amount as the Company and W&R may agree.
C. The Company shall, after excluding from the redemption proceeds
that portion represented by the reinvestment of dividends and distributions and
the appreciation of the value of Fund shares being redeemed, promptly pay W&R an
amount, if any, equal to the percent of the amount invested as determined by W&R
and as is then stated in the Company's current prospectus applicable to the
shares redeemed (the "contingent deferred sales charge"). For purposes of
determining the applicable contingent deferred sales charge, if any: the
redemptions shall be deemed in order of investment made when more than one
investment has been made; and when the shares being redeemed were acquired by
exchange of shares of another Fund or Class of the Company, or corresponding
class of another registered investment company for which W&R or its affiliate
serves as principal underwriter, the investment shall be deemed as if it had
been made when the Company's shares were first purchased, and the applicable
contingent deferred sales charges, if any, shall be with respect to the amount
originally invested in Company shares; and provided that any contingent deferred
sales charge shall be determined in accordance with and in the manner set forth
in the applicable then current prospectus and any applicable Order or Rule
issued by the SEC.
D. It is contemplated that W&R may pay commissions to its field sales
force at the time of sale of the Company's shares and may incur other expenses
substantially in advance of receiving the distribution fee, if any, that may be
applicable to the payment of such commissions and expenses. W&R recognizes that
such payments are at its risk and that this Agreement may be terminated or not
continued as hereinafter provided without the payment to it of any further
distribution fees or service fees whatsoever and without the payment of any
penalty. The contingent deferred sales charges, if any, shall, however, be
payable to W&R with respect to all subject sales made prior to the termination
of this Agreement.
E. W&R shall at least quarterly provide to the Company's board of
directors a written report with respect to each Fund or Class, as applicable, of
the amounts of the distribution and/or service fees expended and the purposes
for which these expenditures were made. W&R shall in addition furnish to the
board of directors of the Company such information as may be requested or as may
be necessary to an informed determination by the directors of whether or not the
directors should continue the Company's Plan(s) and continue this Agreement and
to determine whether there is reasonable likelihood that the Plan(s) and this
Agreement will benefit the Company and its shareholders affected by such
Plan(s).
V. INDEMNIFICATION
A. The Company agrees with W&R for the benefit of W&R and each
person, if any, who controls W&R within the meaning of Section 15 of the
Securities Act and each and all and any of them, to indemnify and hold harmless
W&R and any such controlling person from and against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act, under any other statute, at common law
or otherwise, and to reimburse the underwriter and such controlling persons, if
any, for any legal or other expenses (including the cost of any investigation
and preparation) reasonably incurred by them or any of them in connection with
any litigation whether or not resulting in any liability, insofar as such
losses, claims, damages, liabilities or litigation arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus or any amendment
thereof or supplement thereto or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that this indemnity agreement shall not apply to amounts paid in settlement of
any such litigation if such settlement is effected without the consent of the
Company or to any such losses, claims, damages, liabilities or litigation
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any registration statement or prospectus or any
amendment thereof or supplement thereto, or arising out of or based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information furnished in writing
to the Company by W&R for inclusion in any registration statement or any
prospectus or any amendment thereof or supplement thereto. W&R and each such
controlling person shall promptly, after the complaint shall have been served
upon W&R or such controlling person in any litigation against W&R or such
controlling person in respect of which indemnity may be sought from the Company
on account of its agreement contained in this paragraph, notify the Company in
writing of the commencement thereof. The omission of W&R or such controlling
person so to notify the Company of any such litigation shall relieve the Company
from any liability which it may have to W&R or such controlling person on
account of the indemnity agreement contained in this paragraph but shall not
relieve the Company from any liability which it may have to W&R or controlling
person otherwise than on account of the indemnity agreement contained in this
paragraph. In case any such litigation shall be brought against W&R or any such
controlling person and the underwriter or such controlling person shall notify
the Company of the commencement thereof, the Company shall be entitled to
participate in (and, to the extent that it shall wish, to direct) the defense
thereof at its own expense but such defense shall be conducted by counsel of
good standing and satisfactory to W&R or such controlling person or persons,
defendant or defendants in the litigation. The indemnity agreement of the
Company contained in this paragraph shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of W&R or any such
controlling person and shall survive any delivery of shares of the Company. The
Company agrees to notify W&R promptly of the commencement of any litigation or
proceeding against it or any of its officers or directors of which it may be
advised in connection with the issue and sale of its shares.
B. Anything herein to the contrary notwithstanding, the agreement in
Section A of this article, insofar as it constitutes a basis for reimbursement
by the Company for liabilities (other than payment by the Company of expenses
incurred or paid in the successful defense of any action, suit or proceeding)
arising under the Securities Act, shall not extend to the extent of any interest
therein of any person who is an underwriter or a partner or controlling person
of an underwriter within the meaning of Section 15 of the Securities Act or who,
at the date of this Agreement, is a director of the Company, except to the
extent that an interest of such character shall have been determined by a court
of appropriate jurisdiction the question of whether or not such interest is
against public policy as expressed in the Securities Act.
C. W&R agrees to indemnify and hold harmless the Company and its
directors and such officers as shall have signed any registration statement from
and against any and all losses, claims, damages or liabilities, joint or
several, to which the Company or such directors or officers may become subject
under the Securities Act, under any other statute, at common law or otherwise,
and will reimburse the Company or such directors or officers for any legal or
other expenses (including the cost of any investigation and preparation)
reasonably incurred by it or them or any of them in connection with any
litigation, whether or not resulting in any liability insofar as such losses,
claims, damages, liabilities or litigation arise out of, or are based upon, any
untrue statement or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
which statement or omission was made in reliance upon information furnished in
writing to the Company by W&R for inclusion in any registration statement or any
prospectus, or any amendment thereof or supplement thereto, or which statement
was made in, or the alleged omission was from, any advertising or sales
literature (including any reports to shareholders used as such) which relate to
the Company.
W&R shall not be liable for amounts paid in settlement of any such
litigation if such settlement was effected without its consent. The Company and
its directors and such officers, defendant or defendants, in any such litigation
shall, promptly after the complaint shall have been served upon the Company or
any such director or officer in any litigation against the Company or any such
director or officer in respect of which indemnity may be sought from W&R on
account of its agreement contained in this paragraph, notify W&R in writing of
the commencement thereof. The omission of the Company or such director or
officer so to notify the underwriter of any such litigation shall relieve W&R
from any liability which it may have to the Company or such director or officer
on account of the indemnity agreement contained in this paragraph, but shall not
relieve W&R from any liability which it may have to the Company or such director
or officer otherwise than on account of the indemnity agreement contained in
this paragraph. In case any such litigation shall be brought against the
Company or any such officer or director and notice of the commencement thereof
shall have been so given to W&R, W&R shall be entitled to participate in (and,
to the extent that it shall wish, to direct) the defense thereof at its own
expense, but such defense shall be conducted by counsel of good standing and
satisfactory to the Company. The indemnity agreement of W&R contained in this
paragraph shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Company and shall survive any delivery
of shares of the Company. W&R agrees to notify the Company promptly of the
commencement of any litigation or proceeding against it or any of its officers
or directors or against any such controlling person of which it may be advised,
in connection with the issue and sale of the Company's shares.
D. Notwithstanding any provision contained in this Agreement, no
party hereto and no person or persons in control of any party hereto shall be
protected against any liability to the Company or its security holders to which
they would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of their duties or by reason of their
reckless disregard of their obligations and duties under this Agreement.
VI. OTHER TERMS
A. This Agreement shall not be deemed to limit W&R from acting as
underwriter and/or dealer for any other mutual fund, from engaging in any other
aspects of the securities business, whether or not such may be deemed in
competition with the sale of shares of the Company, and to carry on any other
lawful business whatsoever.
B. Except as expressly provided in Article V and hereinabove, the
agreements herein set forth have been made and are made solely for the benefit
of the Company and W&R, and the persons expressly provided for in Article V,
their respective heirs and successors, personal representatives and assigns, and
except as so provided, nothing expressed or mentioned herein is intended or
shall be construed to give any person, firm or corporation other than the
Company, W&R and the persons expressly provided for in Article V any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
representation, warranty or agreement herein contained. Except as so provided,
the term "heirs, successors, personal representatives and assigns" shall not
include any purchaser of shares merely because of such purchase.
C. This Agreement shall continue in effect, unless terminated as
hereinafter provided, for a period of one (1) year and thereafter only if such
continuance is specifically approved at least annually by the Board of
Directors, including the vote of a majority of the directors who are not parties
to the Agreement or "interested persons" (as defined in the Investment Company
Act of 1940) or any such party and who have no direct or indirect financial
interest in the operation of any Plan or any agreement relating to that Plan
(hereafter the "Plan directors"), cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may be terminated by W&R at
any time without penalty upon giving the Company sixty (60) days' written notice
(which notice may be waived by the Company) and may be terminated by the Company
at any time without penalty upon giving W&R sixty (60) days' written notice
(which notice may be waived by W&R), provided that such termination by the
Company shall be directed or approved by the vote of a majority of the Plan
directors, or by the vote of a majority (as defined in the Investment Company
Act of 1940) of the outstanding voting securities of a Fund with respect to that
Fund. This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940.
D. This Agreement shall be governed and construed in accordance with
the laws of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers and their corporate seals to be
affixed as of the day and year first above written.
United Gold & Government Fund, Inc.
By:/s/Sharon K. Pappas
Sharon K. Pappas, Vice President
and Secretary
ATTEST:
By:/s/Amy D. Eisenbeis
Amy D. Eisenbeis
Assistant Secretary
WADDELL & REED, INC.
By:/s/Robert L. Hechler
Robert L. Hechler, President
ATTEST:
By:/s/Sharon K. Pappas
Sharon K. Pappas, Secretary
EX-99.B8-GGCAA
2/15/95
APPENDIX A
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 1992
The following is a list of Domestic Subcustodians, Foreign Sub-
Subcustodian and Special Subcustodians under the Custodian Agreement as
amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, 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
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of
Japan
Korea Citibank, n.a. Korean Securities
Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara
Malaysia
Mexico Citibank 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
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De
Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Thailand HongKong & Shanghai Banking Corp. Share Depository
Center (SDC)
Turkey Citibank, n.a. TvS, Central Bank
of Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
EX-99.B8-GGCAA2
1/5/95
APPENDIX "B"
to
CUSTODIAN AGREEMENT
between
UNITED FUNDS and UMB BANK, N.A.
Dated as if January 1, 1995
The Fund shall be responsible for providing to 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/option 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
Philippines .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.) will pass through.
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(d)-GGSAA
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 1st day of September, 1994, by
and between United Gold & Government Fund, Inc. (the "Fund") and Waddell & Reed,
Inc. ("W&R").
WHEREAS, the Fund and W&R have entered into a certain Service Agreement dated
October 1, 1993, which the parties now desire to amend to provide for the
provision of personal services and maintenance of shareholder accounts through
broker-dealers who sell shares of the Fund to qualified benefit plans under a
selling group agreement with W&R, or through other third parties;
AND WHEREAS, the Fund has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan pursuant to which this Service Agreement has
been adopted and which Service Plan authorizes the payment to W&R of a service
fee to finance shareholder servicing by, among others, broker-dealers who may
sell Fund shares.
NOW THEREFORE, it is mutually agreed as follows:
A. Section A of the Service Agreement is hereby amended by the addition of the
following subsection:
4. Third-Party Services - Through broker-dealers selling shares of the
Fund to employee benefit plans, including benefit plans existing under the
provisions of Section 457 of the United States Internal Revenue Code (hereafter
"Benefit Plans"), or through other third parties, and who provide personal
services to the Benefit Plans and assist in the maintenance of participants'
accounts for whom the Benefit Plans hold shares of the Fund.
B. Section B of the Service Agreement is hereby amended by the addition of the
following subsection:
5. Subject to the limitation set forth in Section B.3., the Fund shall
fully reimburse W&R for payments it makes to a broker-dealer who sells Fund
shares to Benefit Plans to cover a part of the broker-dealer's cost incurred
directly or through affiliates, and to any other third party to cover a part of
that party's cost, in providing personal services to the Benefit Plans and for
the maintenance of participants' accounts of the Benefit Plans, provided that
such payment shall not exceed a sum equal to .25 of 1% of the Fund's average
annual net assets represented by Fund shares purchased through the broker-dealer
or in accounts coded in the name of the third party, as applicable, and held by
the Benefit Plans.
C. Approval and Other Provisions.
1. The Fund represents that this Amendment has been approved by vote of
the Board of Directors of the Fund and of the directors of the Fund who are not
interested persons of the Fund and who have no direct financial interest in the
operation of the Service Plan or this Agreement ("independent directors"), which
was cast in person by such directors at a meeting called for the purpose of
voting on the plan and approval of this Amendment.
2. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in the
Service Agreement and to the other provisions set forth therein.
IN WITNESS WHEREOF, the parties have executed this Amendment this 1st day of
September, 1994.
United Gold & Government Fund, Inc.
By:/s/Sharon K. Pappas
Sharon K. Pappas, Vice President and Secretary
Waddell & Reed, Inc.
By:/s/Robert L. Hechler
Robert L. Hechler, President
<PAGE>
EX-99.B9-GGapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P. O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vice
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
<PAGE>
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers.
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing for a number to be issued to me) and (strike the following if not true)
that I am not subject to backup withholding because (a) I am exempt fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment as
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
<PAGE>
EX-99.B9-GGnavapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P. O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Return
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vic
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
<PAGE>
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing for a number to be issued to me) and (strike the following if not true)
that I am not subject to backup withholding because (a) I am exempt fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment a
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 16 to the Registration Statement on Form N-1A of our
report dated January 31, 1995 relating to the financial statements and the
financial highlights of United Gold & Government Fund, Inc., which appears in
such Prospectus. We further consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the reference to us under the
heading "Custodial and Auditing Services" in the Statement of Additional
Information constituting part of this Post-Effective Amendment.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 29, 1995
<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>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
-------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
-------------------- (Principal Executive Officer) --------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
-------------------- and Principal Accounting --------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
-------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
-------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
-------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
-------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
-------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
-------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
-------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
-------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
-------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
-------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
-------------------- --------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
--------------------------------
Sharon K. Pappas, Vice President
and Secretary
March 29, 1995
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, DC. 20549
Re: United Gold & Government Fund, Inc.
Post-Effective Amendment No. 16
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:jb
