United
Government
Securities
Fund, Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1996
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1996
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. Our goal to provide the best service
possible to our shareholders has not changed since we opened our doors nearly 60
years ago. Waddell & Reed's team of professionals, including the Fund's
manager, our customer service representatives and your personal account
representative continue to strive to meet your financial needs.
Waddell & Reed plays a special role in the investment industry. We take
pride in being one of the few financial services firms committed to locally
based account representatives who provide the personal service you need. When
you're ready to evaluate your financial plan to keep up with life's changes, or
to find an answer to a financial question that you may have, your representative
is ready to assist you--when you need it. He or she is available to help you
plan for your retirement, fund a child's education or make plans for other long-
term financial goals.
All of us are committed to helping you meet the financial goals that are
important to you. This is accomplished by our offering investment products to
meet a variety of personal financial objectives, along with the personal service
to make the investment process more convenient and accessible.
We want to continue to meet your financial needs for many years to come.
Should you have any questions about your account or other financial issues that
are important to you, contact your personal account representative or your local
Waddell & Reed office. They're ready to help you make the most of your
financial future.
Respectfully,
Keith A. Tucker
President
<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
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- -------------------------------------------
DIVIDENDS PAID $0.16
=====
NET ASSET VALUE ON
9/30/96 $5.25
3/31/96 5.32
-----
CHANGE PER SHARE $(0.07)
=====
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 9-30-96 -0.26% 4.17%
5-year period ended 9-30-96 6.34% 7.27%
10-year period ended 9-30-96 6.72% 7.19%
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 September 30, 1996, United Government Securities Fund, Inc. had net assets
totaling $138,599,703 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on September 30, 1996, your Fund owned:
$33.01 Federal National Mortgage Association Bonds
22.99 Miscellaneous U.S. Government Backed Bonds
21.14 United States Treasury
10.96 Federal Home Loan Mortgage Corporation Bonds
9.11 Government National Mortgage Association Bonds
2.79 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 78 $ 82,835
7.5%, 9-1-2007 ........................ 181 181,574
8.0%, 2-1-2023 ........................ 3,040 3,070,425
6.5%, 11-1-2024 ....................... 2,824 2,681,634
7.0%, 12-1-2025 ....................... 9,495 9,178,177
Total ................................. 15,194,645
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,844 4,959,974
7.5%, 4-25-2002 ....................... 3,388 3,386,916
7.0%, 10-25-2003 ...................... 6,720 6,625,450
6.0%, 6-25-2007 ....................... 5,000 4,825,000
8.4%, 2-25-2009 ....................... 5,000 5,175,000
11.0%, 10-1-2020 ...................... 5,014 5,660,833
7.0%, 12-1-2023 ....................... 9,320 8,990,648
7.42%, 10-1-2025 ...................... 6,225 6,131,949
Total ................................. 45,755,770
Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 14 14,676
8.5%, 5-15-2023 ....................... 2,158 2,219,352
7.0%, 7-15-2023 ....................... 4,181 4,048,910
9.75%, 11-15-2028 ..................... 2,955 3,195,256
10.5%, 3-15-2029 ...................... 1,035 1,138,720
7.75%, 9-15-2031 ...................... 2,000 2,000,000
Total ................................. 12,616,914
United States Treasury:
6.0%, 8-15-99 ......................... 5,000 4,964,850
6.375%, 8-15-2002 ..................... 9,500 9,434,640
7.875%, 11-15-2004 .................... 10,350 11,123,042
5.875%, 11-15-2005 .................... 4,000 3,778,760
Total ................................. 29,301,292
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Miscellaneous United States Government
Backed Securities:
Federal Agricultural Mortgage Corporation
Guaranteed Agricultural Mortgage-Backed
Securities,
7.066%, 1-25-2012 ................... $ 7,500 $ 7,152,000
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 3,983 4,344,645
Synthetic Off-the-Run Treasuries,
Series 1994-2,
6.0%, 2-15-2009 ..................... 6,200 5,721,980
Tennessee Valley Authority,
5.98%, 4-1-2036 ..................... 10,000 10,041,900
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 ...................... 4,790 4,601,224
Total ............................... 31,861,749
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 97.21% $134,730,370
(Cost: $134,727,995)
SHORT-TERM SECURITIES - 3.41%
Lehman Brothers, 5.6% Repurchase
Agreement dated 9-30-96, to be
repurchased at $4,735,737 on 10-1-96* . 4,735 $4,735,000
(Cost: $4,735,000)
TOTAL INVESTMENT SECURITIES - 100.62% $139,465,370
(Cost: $139,462,995)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.62%) (865,667)
NET ASSETS - 100.00% $138,599,703
Notes to Schedule of Investments
*Collateralized by $4,455,000 U.S. Treasury Notes, 7.5% due 11-15-2024; market
value and accrued interest aggregate $4,837,388.
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
SEPTEMBER 30, 1996
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $139,465,370
Cash ............................................ 60,989
Receivables:
Interest ........................................ 1,619,112
Fund shares sold ................................ 79,727
Investment securities sold ...................... 9,584
Prepaid insurance premium ........................ 12,010
------------
Total assets .................................. 141,246,792
------------
Liabilities
Payable for investment securities purchased ...... 1,989,063
Payable for Fund shares redeemed ................. 487,952
Dividends payable ................................ 77,222
Accrued service fee .............................. 41,700
Accrued transfer agency and dividend disbursing .. 24,417
Accrued accounting services fee .................. 3,333
Other ............................................ 23,402
------------
Total liabilities ............................. 2,647,089
------------
Total net assets.............................. $138,599,703
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 264,230
Additional paid-in capital ...................... 143,768,090
Accumulated undistributed gain (loss):
Accumulated undistributed net realized loss on
investment transactions ....................... (5,434,992)
Net unrealized appreciation in value of
investments at end of period ................... 2,375
------------
Net assets applicable to outstanding units
of capital ................................... $138,599,703
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.25
Class Y .......................................... $5.25
Capital shares outstanding
Class A .......................................... 26,324,080
Class Y .......................................... 98,955
Capital shares authorized ..........................3,000,000,000
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1996
Investment Income
Interest ......................................... $4,992,160
----------
Expenses (Note 2):
Investment management fee ....................... 286,432
Transfer agency and dividend disbursing - Class A 162,963
Service fee - Class A ........................... 107,895
Accounting services fee ......................... 20,000
Audit fees ...................................... 7,690
Custodian fees .................................. 5,915
Legal fees ...................................... 3,745
Shareholder servicing - Class Y ................. 450
Other ........................................... 61,991
-----------
Total expenses ................................ 657,081
-----------
Net investment income ........................ 4,335,079
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net loss on securities .................. (999,788)
Realized net gain on options ..................... 162,123
-----------
Net realized loss on investments ................ (837,665)
Unrealized depreciation in value of investments
during the period ............................... (1,156,789)
-----------
Net loss on investments ......................... (1,994,454)
-----------
Net increase in net assets resulting from
operations ................................... $2,340,625
===========
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
September 30, March 31,
1996 1996
Decrease in Net Assets ------------ ------------
Operations:
Net investment income ............ $ 4,335,079 $ 9,643,146
Realized net gain (loss)
on investments ................. (837,665) 1,906,921
Unrealized appreciation
(depreciation) ................. (1,156,789) 3,688,092
------------ ------------
Net increase in net assets
resulting from operations ..... 2,340,625 15,238,159
------------ ------------
Dividends to shareholders from
net investment income:*
Class A .......................... (4,317,319) (9,639,561)
Class Y ............................. (17,760) (3,585)
------------ ------------
(4,335,079) (9,643,146)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (1,076,429 and 2,816,516
shares, respectively) ......... 5,662,015 15,113,673
Class Y (6,572 and 110,748
shares, respectively) ............ 34,476 598,202
Proceeds from reinvestment of
dividends:
Class A (738,586 and 1,617,273
shares, respectively) ......... 3,872,194 8,677,824
Class Y (3,390 and 599
shares, respectively) ............ 17,774 3,186
Payments for shares redeemed:
Class A (3,069,947 and 6,026,762
shares, respectively) ......... (16,060,769) (32,333,592)
Class Y (12,944 and 9,410
shares, respectively) ............ (67,683) (51,097)
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (6,541,993) (7,991,804)
------------ ------------
Total decrease ................ (8,536,447) (2,396,791)
Net Assets
Beginning of period ............... 147,136,150 149,532,941
------------ ------------
End of period ..................... $138,599,703 $147,136,150
============ ============
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
six months For the fiscal year ended March 31,
ended -----------------------------------
9-30-96 1996 1995 1994 1993 1992
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.32 $5.13 $5.23 $5.44 $5.01 $4.85
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.34 0.32 0.30 0.33 0.37
Net realized and
unrealized gain
(loss) on
investments ..... (0.07) 0.19 (0.10) (0.21) 0.43 0.16
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.09 0.53 0.22 0.09 0.76 0.53
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.16) (0.34) (0.32) (0.30) (0.33) (0.37)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $5.25 $5.32 $5.13 $5.23 $5.44 $5.01
===== ===== ===== ===== ===== =====
Total return* ...... 1.76% 10.48% 4.49% 1.56% 15.62% 11.22%
Net assets, end
of period (000
omitted) .........$138,081$146,594$149,533$176,649$177,167$138,753
Ratio of expenses
to average net
assets ........... 0.93%** 0.83% 0.82% 0.75% 0.71% 0.75%
Ratio of net investment
income to average
net assets ....... 6.14%** 6.34% 6.30% 5.50% 6.29% 7.40%
Portfolio turnover
rate ............. 26.04% 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.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six period
months from 9/27/95
ended through
9/30/96 3/31/96*
-------- --------
Net asset value,
beginning of period $5.32 $5.33
----- -----
Income from investment
operations:
Net investment
income .......... 0.17 0.17
Net realized and
unrealized loss on
investments...... (0.07) (0.01)
----- -----
Total from investment
operations ........ 0.10 0.16
----- -----
Less dividends declared
from net investment
income ............ (0.17) (0.17)
----- -----
Net asset value,
end of period ..... $5.25 $5.32
===== =====
Total return ....... 1.95% 3.04%
Net assets, end of
period (000
omitted) ......... $519 $542
Ratio of expenses
to average net
assets ............ 0.57%** 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.50%** 6.40%**
Portfolio
turnover rate ..... 26.04% 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
SEPTEMBER 30, 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 securities 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 pricing service or dealer in
bonds. Other securities are valued at the latest sale price thereof on the
last business day of the fiscal period as reported by the principal
securities exchange on which the issue is traded or, if no sale is
reported, the average of the latest bid and asked prices. Short-term debt
securities are valued at amortized cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums 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 as of the close of the preceding business day. 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.
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 $14.7
billion of combined net assets at September 30, 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 $1.3125 for each
shareholder account which was in existence at any time during the prior month
($1.0208 per account prior to April 1, 1996) 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 $157,630, out of which W&R paid sales commissions of $91,151 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 $2,656.
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 $35,827,436 while
proceeds from maturities and sales aggregated $39,193,941. Purchases of short-
term securities aggregated $490,432,000 while proceeds from maturities and sales
aggregated $491,837,000.
For Federal income tax purposes, cost of investments owned at September 30,
1996 was $139,567,517, resulting in net unrealized depreciation of $99,147, of
which $1,712,734 related to appreciated securities and $1,811,881 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 capital losses of $2,174,332 which have been
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 -- 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.
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 September 30, 1996, the results of its operations for the
six months 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 September 30, 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
November 8, 1996
<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, Coronado, California
Doyle Patterson, Kansas City, Missouri
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., 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
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.
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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
NUR1011SA(9-96)
printed on recycled paper
