United
Government
Securities
Fund, Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1996
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1996
Dear Shareholder:
This report relates to the operation of United Government Securities Fund for
the fiscal year ended March 31, 1996. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
During the past fiscal year, the Federal Reserve Bank reversed its restrictive
economic policies of 1994 and early 1995 and cut short-term interest rates on
three different occasions. The shift in monetary policy by the Federal Reserve
Bank, combined with meaningful balanced budget negotiations, the expectation of
a slow economy and an inflow of foreign investment in United States bonds,
positively impacted the bond market. During the last quarter of the fiscal
year, the bond market gave up part of the positive returns gained earlier as the
result of upward adjustments in the market's expectations for economic growth.
In an effort to improve total return, the Fund pursued a strategy of lengthening
the average maturity of the portfolio during the first part of the fiscal year
to take advantage of the rally in bond prices. As bond prices began to fall
during the latter part of the fiscal year, we shortened the average maturity of
the Fund's portfolio. We also purchased higher-yielding bonds issued by
agencies of the federal government. The Fund held a high allocation of
mortgage-backed securities during the fiscal year on the belief that this
security class was undervalued relative to other fixed income alternatives.
The strategies and techniques we applied resulted in the direction of the Fund's
performance remaining fairly consistent with that of the indexes charted on the
following page. Those indexes represent the performance of securities that
generally represent the U.S. government securities market (the Lehman Brothers
Government Bond Index) and the universe of funds with similar investment
objectives (the Lipper General U.S. Government Fund Universe Average). The
Fund's performance during the past fiscal year was slightly better than that of
these indexes due to the Fund's well-timed adjustments in the average maturity
of its portfolio and the other investment strategies pursued by the Fund.
Bond analysts predict economic growth and rising inflation during the early part
of the coming year. However, market indicators suggest that short-term economic
growth and the related inflationary pressures will be modest compared to
historical bear market periods. We expect bonds to recover somewhat within the
intermediate time frame, but intend to maintain a defensive position until
market tone experiences improvement. Thereafter, we will extend bond maturities
in an effort to achieve competitive returns while striving to preserve principal
value for the Fund's shareholders.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
John E. Sundeen, Jr.
Manager, United Government Securities Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
UNITED GOVERNMENT SECURITIES FUND, INC. CLASS A SHARES,
THE LEHMAN BROTHERS GOVERNMENT BOND INDEX,
AND THE LIPPER GENERAL U.S. GOVERNMENT FUND UNIVERSE AVERAGE
United
GovernmentLehman Lipper
SecuritiesBrothersGeneral U.S.
Fund,Government Govt. Fund
Class Bond Universe
A Shares Index Average
------------------ ----------
03/31/86 Purchase 9,575 10,000 10,000
03/31/87 10,470 10,739 10,715
03/31/88 10,150 11,205 11,022
03/31/89 10,569 11,734 11,493
03/31/90 11,632 13,099 12,605
03/31/91 12,874 14,734 14,017
03/31/92 14,318 16,340 15,416
03/31/93 16,554 18,638 17,329
03/31/94 16,675 19,139 17,610
03/31/95 17,568 19,965 18,129
03/31/96 19,411 22,053 19,806
- ---------- Lipper General U.S. Govt. Fund Universe Average -- $19,806
- - - - - - Lehman Brothers Government Bond Index - $22,053
===== United Government Securities Fund, Inc., Class A shares* -- $19,411
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Annual Average Total Return +
Class A++ Class Y
-----------------------------
Year Ended
3/31/96 10.48% N/A
5 Years Ended
3/31/96 8.56% N/A
10 Years Ended
3/31/96 7.32% N/A
Aggregate Total
Return for Life
of Class Y +++ N/A 3.04%
+ Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++ Performance data quoted represents past performance and is based on
deduction of a 4.25% sales load on the initial purchase in each of the
three periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+++ 9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -------------------------------------------------------------
United Government Securities Fund, Inc.
PORTFOLIO STRATEGY:
Long-term U.S. Government OBJECTIVE: As high a current income
Securities as is consistent with
safety of principal. (Fund shares are
not
Short-term U.S. Government guaranteed by the
Securities U.S. Government or any
government agency.
Intermediate-term U.S. Fund share value and
Government Securities yield will fluctuate due to changing
interest rates or other market
conditions and the investor may
experience a loss.)
STRATEGY: Invests primarily in debt securities
issued or guaranteed by the U.S.
Government or its agencies or
instrumentalities. (May purchase
securities subject to repurchase
agreements. May invest in certain
options and futures.)
FOUNDED: 1982
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- ----------------------------------------
DIVIDENDS PAID $0.34
=====
NET ASSET VALUE ON
3/31/96 $5.32
3/31/95 5.13
-----
CHANGE PER SHARE $0.19
=====
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ------------ -------------
1-year period ended 3-31-96 5.79% 10.48%
5-year period ended 3-31-96 7.62% 8.56%
10-year period ended 3-31-96 6.85% 7.32%
Performance data quoted represents past performance and is based on deduction of
4.25% sales load on the initial purchase in each of the three periods.
Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, United Government Securities Fund, Inc. had net assets
totaling $147,136,150 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on March 31, 1996, your Fund owned:
$35.75 Federal National Mortgage Association Bonds
21.15 United States Treasury
14.12 Federal Home Loan Mortgage Corporation Bonds
13.86 Government National Mortgage Association Bonds
10.29 Miscellaneous U.S. Government Backed Bonds
4.83 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 103 $ 108,706
7.5%, 9-1-2007 ........................ 200 203,344
7.0%, 1-15-2021 ....................... 5,000 4,871,850
8.0%, 2-1-2023 ........................ 3,288 3,346,880
6.5%, 11-1-2024 ....................... 2,873 2,746,355
7.0%, 12-1-2025 ....................... 9,736 9,495,516
Total ................................. 20,772,651
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,864 4,937,178
7.5%, 4-25-2002 ....................... 3,388 3,401,755
7.0%, 11-25-2003 ...................... 6,720 6,724,167
7.5%, 12-25-2006 ...................... 5,000 5,090,600
6.0%, 6-25-2007 ....................... 5,000 4,842,150
8.4%, 2-25-2009 ....................... 5,000 5,275,000
11.0%, 10-1-2020 ...................... 5,692 6,392,971
7.0%, 12-1-2023 ....................... 9,849 9,597,054
7.42%, 10-1-2025 ...................... 6,250 6,343,666
Total ................................. 52,604,541
Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 14 14,839
8.5%, 5-15-2023 ....................... 2,168 2,264,171
7.0%, 7-15-2023 ....................... 4,416 4,301,258
7.5%, 7-15-2023 ....................... 824 821,943
7.5%, 9-15-2023 ....................... 4,389 4,379,357
7.5%, 2-15-2024 ....................... 4,258 4,248,537
9.75%, 11-15-2028 ..................... 2,961 3,231,436
10.5%, 3-15-2029 ...................... 1,037 1,129,273
Total ................................. 20,390,814
United States Treasury:
6.375%, 8-15-2002 ..................... 9,500 9,554,910
7.875%, 11-15-2004 .................... 11,500 12,615,845
0.0%, 5-15-2008 ....................... 20,000 8,939,600
Total ................................. 31,110,355
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... $4,011 $ 4,478,026
U.S. Government Guaranteed Development
Company Participation Certificates,
Series 1995-20 F, Guaranteed by the U.S.
Small Business Administration (an
Independent Agency of the United States),
6.8%, 6-1-2015 ...................... 4,920 4,809,354
Synthetic Off-the-Run Treasuries,
Series 1994-2,
6.0%, 2-15-2009 ..................... 6,200 5,857,140
Total ............................... 15,144,520
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 95.17% $140,022,881
(Cost: $138,986,964)
Number
of Contracts
OPTIONS - 0.16%
June 114 Put Options on Treasury Bond
Futures, Expires 5-18-96 .............. 75 $ 242,550
(Cost: $119,303)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES - 4.17%
J. P. Morgan Securities, 5.2% Repurchase
Agreement dated 3-29-96, to be
repurchased at $6,142,661 on 4-1-96* .. $6,140 $ 6,140,000
(Cost: $6,140,000)
TOTAL INVESTMENT SECURITIES - 99.50% $146,405,431
(Cost: $145,246,267)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.50% 730,719
NET ASSETS - 100.00% $147,136,150
Notes to Schedule of Investments
*Collateralized by $4,277,000 U.S. Treasury Notes, 12% due 8-15-2013; market
value and accrued interest aggregate $6,245,846.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $146,405,431
Cash ............................................ 10,392
Receivables:
Investment securities sold ...................... 3,078,605
Interest ........................................ 1,228,855
Fund shares sold ................................ 80,188
Prepaid insurance premium ........................ 10,540
------------
Total assets .................................. 150,814,011
------------
Liabilities
Payable for investment securities purchased ...... 2,731,142
Payable for Fund shares redeemed ................. 761,132
Dividends payable ................................ 76,944
Accrued service fee .............................. 44,281
Accrued transfer agency and dividend disbursing .. 21,890
Accrued accounting services fee .................. 3,333
Other ............................................ 39,139
------------
Total liabilities ............................. 3,677,861
------------
Total net assets.............................. $147,136,150
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 276,809
Additional paid-in capital ...................... 150,297,504
Accumulated undistributed gain (loss):
Accumulated undistributed net realized loss on
investment transactions ....................... (4,597,327)
Net unrealized appreciation in value of
investments at end of period ................... 1,159,164
------------
Net assets applicable to outstanding units
of capital ................................... $147,136,150
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.32
Class Y .......................................... $5.32
Capital shares outstanding
Class A .......................................... 27,579,012
Class Y .......................................... 101,937
Capital shares authorized ..........................3,000,000,000
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1996
Investment Income
Interest ......................................... $10,903,880
-----------
Expenses (Note 2):
Investment management fee ....................... 625,544
Transfer agency and dividend disbursing - Class A 286,281
Service fee - Class A ........................... 189,811
Accounting services fee ......................... 40,000
Audit fees ...................................... 17,951
Custodian fees .................................. 11,089
Legal fees ...................................... 9,125
Shareholder servicing - Class Y ................. 93
Other ........................................... 80,840
-----------
Total expenses ................................ 1,260,734
-----------
Net investment income ........................ 9,643,146
-----------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 1,790,777
Realized net gain on options ..................... 116,144
-----------
Net realized gain on investments ................ 1,906,921
Unrealized appreciation in value of investments
during the period ............................... 3,688,092
-----------
Net gain on investments ......................... 5,595,013
-----------
Net increase in net assets resulting from
operations ................................... $15,238,159
===========
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
-------------------------
1996 1995
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............ $ 9,643,146 $ 10,053,860
Realized net gain (loss)
on investments ................. 1,906,921 (3,955,179)
Unrealized appreciation........... 3,688,092 243,620
------------ ------------
Net increase in net assets
resulting from operations ..... 15,238,159 6,342,301
------------ ------------
Dividends to shareholders from
net investment income:*
Class A .......................... (9,639,561) (10,053,860)
Class Y ............................. (3,585) ---
------------ ------------
(9,643,146) (10,053,860)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,816,516 and 3,328,430
shares, respectively) ......... 15,113,673 16,881,689
Class Y (110,748 and 0
shares, respectively) ............ 598,202 ---
Proceeds from reinvestment of
dividends:
Class A (1,617,273 and 1,794,421
shares, respectively) ......... 8,677,824 9,097,091
Class Y (599 and 0
shares, respectively) ............ 3,186 ---
Payments for shares redeemed:
Class A (6,026,762 and 9,750,153
shares, respectively) ......... (32,333,592) (49,383,242)
Class Y (9,410 and 0
shares, respectively) ............ (51,097) ---
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (7,991,804) (23,404,462)
------------ ------------
Total decrease ................ (2,396,791) (27,116,021)
Net Assets
Beginning of period ............... 149,532,941 176,648,962
------------ ------------
End of period ..................... $147,136,150 $149,532,941
============ ============
Undistributed net investment
income ......................... $--- $---
==== ====
*See "Financial Highlights" on pages 11 - 12.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... 5.13 $5.23 $5.44 $5.01 $4.85
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... .34 .32 .30 .33 .37
Net realized and
unrealized gain
(loss) on
investments ..... .19 (0.10) (0.21) .43 .16
----- ----- ----- -----
Total from investment
operations ....... .53 .22 .09 .76 .53
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.34) (0.32) (0.30) (0.33) (0.37)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.32 $5.13 $5.23 $5.44 $5.01
===== ===== ===== ===== =====
Total return* ...... 10.48% 4.49% 1.56% 15.62% 11.22%
Net assets, end
of period (000
omitted) ......... $146,594$149,533$176,649$177,167$138,753
Ratio of expenses
to average net
assets ........... 0.83% 0.82% 0.75% 0.71% 0.75%
Ratio of net investment
income to average
net assets ....... 6.34% 6.30% 5.50% 6.29% 7.40%
Portfolio turnover
rate ............. 63.05% 41.57% 122.62% 81.41% 124.51%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from 9/27/95
through
3/31/96*
--------
Net asset value,
beginning of period $5.33
-----
Income from investment
operations:
Net investment
income .......... .17
Net realized and
unrealized loss on
investments...... (0.01)
-----
Total from investment
operations ........ .16
-----
Less dividends declared
from net investment
income ............ (0.17)
-----
Net asset value,
end of period ..... $5.32
=====
Total return ....... 3.04%
Net assets, end of
period (000
omitted) ......... $542
Ratio of expenses
to average net
assets ............ 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.40%**
Portfolio
turnover rate ..... 63.05%
*On July 31, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class A
shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 -- Significant Accounting Policies
United Government Securities Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. Its investment objective is to provide as high a current
income as is consistent with safety of principal by investing in a portfolio of
debt securites issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- The Fund invests in securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities and in options
and futures contracts on those securities. Government debt securities are
valued using a pricing system provided by a major dealer in bonds. Other
securities are valued at the latest sale price thereof on the last business
day of the fiscal period as reported by the principal securities exchange
on which the issue is traded or, if no sale is reported, the average of the
latest bid and asked prices. Short-term debt securities are valued at
amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Interest income is recorded on the
accrual basis and includes differences between cost and face amount on
principal reductions of securities. See Note 3 -- Investment Security
Transactions.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
D. Dividends and distributions -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record at the time of the previous determination of net
asset value. Net investment income distributions and capital gains
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are due to differing treatments for items such as deferral of
wash sales and post-October losses, net operating losses and expiring
capital loss carryforwards. At March 31, 1996, $7,393,852 was reclassified
between accumulated undistributed net realized gain on investment
transactions and additional paid-in capital.
E. Repurchase Agreements -- Repurchase agreements are collateralized by the
value of the resold securities which, during the entire period of the
agreement, remains at least equal to the value of the loan, including
accrued interest thereon. The collateral for the repurchase agreement is
held by the Fund's custodian bank.
F. Options -- See Note 5 -- Options.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of a "Group" fee computed each day on the combined net asset values of
all of the funds in the United Group of mutual funds (approximately $14.0
billion of combined net assets at March 31, 1996) at annual rates of .51% of the
first $750 million of combined net assets, .49% on that amount between $750
million and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45%
between $2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion,
.40% between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.0208 for each
shareholder account which was in existence at any time during the prior month
and $0.75 for each shareholder check which was processed, plus $0.30 for each
account on which a dividend or distribution of cash or shares was paid in that
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of .15% of the average daily net assets of the class for the
preceding month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions for Class A shares (which are not an expense of
the Fund) of $393,413, out of which W&R paid sales commissions of $222,071 and
all expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay monthly a
fee to W&R in an amount not to exceed .25% of the Fund's average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends in
connection with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $6,107.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of U.S. Government securities aggregated $99,435,663 while
proceeds from maturities and sales aggregated $92,364,780. Purchases of options
aggregated $1,103,694 while proceeds from options aggregated $1,100,535.
Purchases of short-term securities aggregated $809,355,000 while proceeds from
maturities and sales aggregated $824,350,000.
For Federal income tax purposes, cost of investments owned at March 31,
1996 was $145,347,789, resulting in net unrealized appreciation of $1,057,642,
of which $2,736,680 related to appreciated securities and $1,679,038 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$403,780 during the year ended March 31, 1996, which included losses of
$2,174,332 deferred from the year ended March 31, 1995 (see discussion below).
Capital loss carryovers aggregated $4,500,408 at March 31, 1996 and are
available to offset future realized capital gain net income for Federal income
tax purposes through March 31, 1997; $2,774,920 of this amount is available
through March 31, 1998; $2,015,486 is available through March 31, 2003; and
$403,780 is available through March 31, 2004.
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its fiscal year ("post-October losses"). From November 1, 1994 through March
31, 1995, the Fund incurred net long-term capital losses of $2,174,332 which
were deferred to the fiscal year ended March 31, 1996.
NOTE 5 -- Options
Options purchased by the Fund are accounted for in the same manner as
marketable portfolio securities. The cost of portfolio securities acquired
through the exercise of call options is increased by the premium paid to
purchase the call. The proceeds from securities sold through the exercise of
put options are decreased by the premium paid to purchase the put. The Fund
uses options to attempt to reduce the overall risk of its investments.
NOTE 6 -- Commencement of Multiclass Operations
On July 31, 1995, the Fund was authorized to offer investors a choice of two
classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Service Plan and have a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the prospectus and the Statement of Additional
Information for the Fund. The Fund commenced multiclass operations on September
27, 1996.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Government Securities Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Government Securities Fund,
Inc. (the "Fund") at March 31, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
each of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 10, 1996
<PAGE>
INCOME TAX INFORMATION
Dividends are declared and recorded by the Fund on each day the New York
Stock Exchange is open for business. Dividends are paid monthly on the 27th of
the month or on the preceding business day if the 27th is a weekend or holiday.
The dividends are not eligible for the dividend received deduction.
The tax status of dividends paid will be reported to you on Form 1099-DIV
after the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the
tax treatment of dividends and distributions from the Fund.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
John E. Sundeen, Jr., Vice President
This report is submitted for the general information of the shareholders of
United Government Securities Fund, Inc. It is not authorized for distribution
to prospective investors in the Fund unless accompanied with or preceded by the
United Government Securities Fund, Inc. current prospectus.
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election not to
have taxes withheld. The election may be made by submitting forms provided by
Waddell & Reed, Inc. which can be obtained from your Waddell & Reed
representative or by submitting Internal Revenue Service form W-4P. Once made,
an election can be revoked by providing written notice to Waddell & Reed, Inc.
If you elect not to have tax withheld you may be required to make payments of
estimated tax. Penalties may be imposed by the IRS if withholding and estimated
tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303
Our INTERNET address is:
http://www.waddell.com
NUR1011A(3-96)
printed on recycled paper
