United
Government
Securities
Fund, Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1997
<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, 1997
Dear Shareholder:
As Waddell & Reed celebrates its 60th anniversary in the financial services
industry, I would like to thank you for your continued confidence in our
products and services. Since we opened our doors in 1937, our goal has been and
continues to be to provide the best service possible to our shareholders. This
commitment is reflected in every area of our organization: starting with your
financial advisor and continuing with our investment management and customer
service people of our affiliated companies.
Your confidence in the success of the products and services offered by Waddell &
Reed and its affiliates is reflected in the growth the Funds have experienced
over our 60 years. Total mutual fund assets under management reached the $1
billion mark in 1961, and over the $5 billion mark in 1985. As of September 30,
1997, mutual fund assets under management totaled more than $20.6 billion.
We look forward to helping you meet the financial goals that are important to
you, now and for many years to come. Should you have any questions about your
account or other financial issues that are important to you, contact your
financial advisor 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, 1997
- -------------------------------------------
DIVIDENDS PAID $0.16
=====
NET ASSET VALUE ON
9/30/97 $5.37
3/31/97 5.19
-----
CHANGE PER SHARE $0.18
=====
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 9-30-97 4.15% 8.77%
5-year period ended 9-30-97 5.31% 6.23%
10-year period ended 9-30-97 8.26% 8.73%
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, 1997, United Government Securities Fund, Inc. had net assets
totaling $129,114,871 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on September 30, 1997, your Fund owned:
$44.86 Federal National Mortgage Association Bonds
19.89 Miscellaneous U.S. Government Backed Bonds
11.29 United States Treasury
12.00 Federal Home Loan Mortgage Corporation Bonds
10.49 Government National Mortgage Association Bonds
1.47 Cash and Cash Equivalents and Options
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 57 $ 60,584
7.5%, 9-1-2007 ........................ 146 149,412
6.5%, 3-15-2020 ....................... 1,000 988,430
8.0%, 2-1-2023 ........................ 2,706 2,795,328
6.5%, 11-1-2024 ....................... 2,440 2,388,536
7.0%, 12-1-2025 ....................... 9,131 9,108,113
Total ................................. 15,490,403
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,392 4,533,528
7.5%, 4-25-2002 ....................... 3,151 3,176,924
7.0%, 10-25-2003 ...................... 6,720 6,734,650
6.0%, 6-25-2007 ....................... 5,000 4,932,800
7.135%, 6-25-2007 ..................... 5,693 5,899,459
7.15%, 6-25-2007 ...................... 2,309 2,393,620
8.4%, 2-25-2009 ....................... 5,000 5,271,900
7.0%, 9-25-2020 ....................... 500 507,500
11.0%, 10-1-2020 ...................... 4,024 4,615,090
6.5%, 11-25-2020 ...................... 5,000 4,951,550
7.0%, 12-1-2023 ....................... 8,680 8,645,163
7.42%, 10-1-2025 ...................... 6,172 6,256,558
Total ................................. 57,918,742
Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 13 14,443
8.5%, 5-15-2023 ....................... 2,137 2,235,513
7.0%, 7-15-2023 ....................... 3,839 3,852,103
7.0%, 8-20-2027 ....................... 990 985,971
9.75%, 11-15-2028 ..................... 2,942 3,252,772
10.5%, 3-15-2029 ...................... 1,032 1,153,650
7.75%, 10-15-2031 ..................... 1,990 2,049,149
Total ................................. 13,543,601
United States Treasury:
6.75%, 5-31-99 ........................ 3,000 3,045,000
5.75%, 10-31-2000 ..................... 1,000 995,160
6.375%, 8-15-2002 ..................... 1,000 1,015,310
7.875%, 11-15-2004 .................... 2,000 2,199,060
7.5%, 11-15-2016 ...................... 1,000 1,112,660
0.0%, 2-15-2019 ....................... 25,000 6,214,750
Total ................................. 14,581,940
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1997
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 ................... $ 7,355 $ 7,384,946
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 3,923 4,568,456
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................... 5,500 5,553,350
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust, 1997-2 Class C,
7.5%, 8-15-2017 ..................... 3,500 3,605,000
United States Government Guaranteed Development
Company Participation Certificates,
Series 1995-20 F, Guaranteed by the U.S.
Small Business Administration (an
Independent Agency of the United States),
6.8%, 6-1-2015 ...................... 4,569 4,576,034
Total ............................... 25,687,786
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 98.53% $127,222,472
(Cost: $123,286,198)
SHORT-TERM SECURITIES - 0.78%
J.P. Morgan, 5.9% Repurchase
Agreement dated 9-30-97, to be
repurchased at $1,005,165 on 10-1-97* . 1,005 $1,005,000
(Cost: $1,005,000)
TOTAL INVESTMENT SECURITIES - 99.31% $128,227,472
(Cost: $124,291,198)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.69% 887,399
NET ASSETS - 100.00% $129,114,871
Notes to Schedule of Investments
*Collateralized by $630,000 U.S. Treasury Bonds, 13.25% due 5-15-2014; market
value and accrued interest aggregate $1,013,368.
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, 1997
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $128,227,472
Receivables:
Interest ........................................ 1,326,392
Fund shares sold ................................ 66,357
Investment securities sold ...................... 2,897
Prepaid insurance premium ........................ 12,801
------------
Total assets .................................. 129,635,919
------------
Liabilities
Payable to Fund shareholders ..................... 331,722
Dividends payable ................................ 97,668
Accrued service fee (Note 2) ..................... 36,387
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 31,505
Due to custodian .................................. 7,317
Accrued accounting services fee (Note 2) ......... 3,333
Accrued management fee (Note 2) .................. 1,402
Other ............................................ 11,714
------------
Total liabilities ............................. 521,048
------------
Total net assets.............................. $129,114,871
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 240,292
Additional paid-in capital ...................... 129,379,347
Accumulated undistributed income:
Accumulated undistributed net realized loss on
investment transactions ....................... (4,441,042)
Net unrealized appreciation in value of
investments ................................... 3,936,274
------------
Net assets applicable to outstanding units
of capital ................................... $129,114,871
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.37
Class Y .......................................... $5.37
Capital shares outstanding
Class A .......................................... 23,899,858
Class Y .......................................... 129,372
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, 1997
Investment Income
Interest and amortization (Note 1B) .............. $4,589,494
----------
Expenses (Note 2):
Investment management fee ....................... 258,568
Transfer agency and dividend disbursing - Class A 153,287
Service fee - Class A ........................... 87,808
Accounting services fee ......................... 20,000
Audit fees ...................................... 6,930
Custodian fees .................................. 5,955
Legal fees ...................................... 4,954
Shareholder servicing - Class Y ................. 1,769
Other ........................................... 62,847
-----------
Total expenses ................................ 602,118
-----------
Net investment income ........................ 3,987,376
-----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on securities ................... (56,579)
Realized net loss on options ..................... (62,195)
-----------
Net realized loss on investments ................ (118,774)
Unrealized appreciation in value of investments
during the period ............................... 4,704,499
-----------
Net gain on investments ......................... 4,585,725
-----------
Net increase in net assets resulting from
operations ................................... $8,573,101
===========
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,
1997 1997
------------- -----------
Decrease in Net Assets
Operations:
Net investment income ............ $ 3,987,376 $ 8,544,567
Realized net loss
on investments ................. (118,774) (1,450,430)
Unrealized appreciation
(depreciation) ................. 4,704,499 (1,927,389)
------------ ------------
Net increase in net assets
resulting from operations ..... 8,573,101 5,166,748
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (3,966,420) (8,507,712)
Class Y .......................... (20,956) (36,855)
------------ ------------
(3,987,376) (8,544,567)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (995,281 and 2,091,068
shares, respectively) ......... 5,261,042 11,045,042
Class Y (5,829 and 36,828
shares, respectively) ............ 30,842 195,100
Proceeds from reinvestment of
dividends:
Class A (675,496 and 1,449,154
shares, respectively) ............ 3,572,715 7,627,374
Class Y (3,943 and 6,957
shares, respectively) ............. 20,856 36,605
Payments for shares redeemed:
Class A (2,631,769 and 6,258,384
shares, respectively) ......... (13,918,214) (32,963,369)
Class Y (7,430 and 18,692
shares, respectively) ......... (39,062) (98,116)
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (5,071,821) (14,157,364)
------------ ------------
Total decrease ................ (486,096) (17,535,183)
Net Assets
Beginning of period ............... 129,600,967 147,136,150
------------ ------------
End of period ..................... $129,114,871 $129,600,967
============ ============
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 -----------------------------------
9-30-97 1997 1996 1995 1994 1993
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.19 $5.32 $5.13 $5.23 $5.44 $5.01
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.33 0.34 0.32 0.30 0.33
Net realized and
unrealized gain
(loss) on
investments ..... 0.18 (0.13) 0.19 (0.10) (0.21) 0.43
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.34 0.20 0.53 0.22 0.09 0.76
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.16) (0.33) (0.34) (0.32) (0.30) (0.33)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $5.37 $5.19 $5.32 $5.13 $5.23 $5.44
===== ===== ===== ===== ===== =====
Total return* ...... 6.69% 3.75% 10.48% 4.49% 1.56% 15.62%
Net assets, end
of period (000
omitted) .........$128,420$128,942$146,594$149,533$176,649$177,167
Ratio of expenses
to average net
assets ........... 0.93%** 0.91% 0.83% 0.82% 0.75% 0.71%
Ratio of net investment
income to average
net assets ....... 6.15%** 6.17% 6.34% 6.30% 5.50% 6.29%
Portfolio turnover
rate ............. 25.80% 34.18% 63.05% 41.57%122.62% 81.41%
*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 For the
six fiscal period
months year from 9/27/95*
ended ended through
9/30/97 3/31/97 3/31/96
-------- -------- --------
Net asset value,
beginning of period $5.19 $5.32 $5.33
----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.17 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments...... 0.18 (0.13) (0.01)
----- ----- -----
Total from investment
operations ........ 0.35 0.21 0.16
----- ----- -----
Less dividends declared
from net investment
income ............ (0.17) (0.34) (0.17)
----- ----- -----
Net asset value,
end of period ..... $5.37 $5.19 $5.32
===== ===== =====
Total return ....... 6.75% 3.99% 3.04%
Net assets, end of
period (000
omitted) ......... $695 $659 $542
Ratio of expenses
to average net
assets ............ 0.83%** 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.25%** 6.41% 6.40%**
Portfolio
turnover rate ..... 25.80% 34.18% 63.05%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 and post-1984 market discount on the purchase of
bonds are amortized for both financial and tax reporting purposes over the
remaining lives of the bonds. Interest income is recorded on the accrual
basis and includes differences between cost and face amount on principal
reductions of securities. See Note 3 -- Investment Security Transactions.
C. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. In addition, the Fund intends to pay distributions as
required to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
D. Dividends and distributions -- All of the Fund's net investment income is
declared and recorded by the Fund as dividends payable on each day to
shareholders of record as of the close of the preceding business day. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from 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 $18.0
billion of combined net assets at September 30, 1997) 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
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 gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$112,435, out of which W&R paid sales commissions of $65,607 and all expenses in
connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .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 distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $2,350, which are included in other
expenses.
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 $32,567,390 while
proceeds from maturities and sales aggregated $32,510,513. Purchases of short-
term securities aggregated $555,470,000 while proceeds from maturities and sales
aggregated $560,645,000.
For Federal income tax purposes, cost of investments owned at September 30,
1997 was $124,494,121, resulting in net unrealized depreciation of $3,733,351,
of which $3,985,347 related to appreciated securities and $251,996 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized net capital losses of
$690,258 during the year ended March 31, 1997, which included the effect of
certain losses deferred into the next fiscal year (see discussion below).
Realized capital loss carryovers aggregated $3,404,593 at March 31, 1997, and
are available to offset future realized capital gain net income for Federal
income tax purposes as follows: $759,434 through March 31, 1998; $1,611,706
through March 31, 2003; $343,195 through March 31, 2004; and $690,258 through
March 31, 2005.
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, 1996 through March
31, 1997, the Fund incurred net capital losses of $719,357, which have been
deferred to the fiscal year ended March 31, 1998.
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 Distribution and 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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Government Securities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Government Securities Fund, Inc. (the
"Fund") as of September 30, 1997, the related statements of operations for the
six-month period then ended and changes in net assets for the six-month period
then ended and the year ended March 31, 1997, and the financial highlights for
the periods presented. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1997 by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Government
Securities Fund, Inc. as of September 30, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
presented in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 7, 1997
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of United Government Securities Fund, Inc. was
held on July 24, 1997. The matters voted upon by the shareholders and the
resulting votes for each matter are presented below.
Item 1. To elect the Board of Directors;
Broker
For WithheldNon-Votes*
Henry L. Bellmon 12,689,697 243,874 0
Dodds I. Buchanan 12,695,636 237,935 0
James M. Concannon 12,694,497 239,074 0
John A. Dillingham 12,686,489 247,082 0
Linda Graves 12,689,809 243,762 0
John F. Hayes 12,689,697 243,874 0
Glendon E. Johnson 12,683,778 249,793 0
William T. Morgan 12,694,466 239,105 0
Ronald K. Richey 12,689,783 243,788 0
William L. Rogers 12,689,631 243,940 0
Frank J. Ross, Jr. 12,691,391 242,180 0
Eleanor B. Schwartz 12,689,631 243,940 0
Keith A. Tucker 12,687,071 246,500 0
Frederick Vogel III 12,695,636 237,935 0
Paul S. Wise 12,689,783 243,788 0
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
Broker
For Against AbstainNon-Votes*
12,222,991 65,991 644,589 0
Item 3.To approve or disapprove changes to certain of its fundamental
investment policies and restrictions:
3.1 Elimination of Fundamental Restriction Regarding Restricted
Securities
Broker
For Against AbstainNon-Votes*
11,647,892 375,974 906,309 3,396
3.2 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
11,658,918 364,948 906,309 3,396
3.3 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against AbstainNon-Votes*
11,659,920 363,946 906,309 3,396
3.4 Elimination of Fundamental Restriction Regarding Arbitrage
Transactions
Broker
For Against AbstainNon-Votes*
11,651,341 372,525 906,309 3,396
3.5 Elimination of Fundamental Restriction Regarding Indexed Securities
Broker
For Against AbstainNon-Votes*
11,650,475 373,391 906,309 3,396
3.6 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
11,661,363 362,503 906,309 3,396
Item 4.To amend the terms of the service plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940.
Broker
For Against AbstainNon-Votes*
11,106,820 491,840 1,214,249 0
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
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
James C. Cusser, Vice 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
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
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1011SA(9-97)
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