United
Government
Securities
Fund, Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1997
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1997
Dear Shareholder:
This report relates to the operation of United Government Securities Fund for
the fiscal year ended March 31, 1997. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
The performance of the Fund is affected primarily by changes in interest rates,
which are in turn significantly impacted by general economic conditions and
federal fiscal and economic policies. During the course of the past fiscal
year, interest rates rose slightly in response to stronger than expected
economic growth. Meaningful balanced budget negotiations and the introduction
of tax reform proposals contributed to volatility in the fixed income markets.
In an effort to stem inflationary pressures resulting from strong signs of
economic growth during the last half of the fiscal year, the Federal Reserve
raised the Federal Funds Rate by a quarter point in March. The combination of
these factors resulted in a weak fixed income market and a slightly positive
return for the Fund.
Although the manager of the Fund has changed during the past fiscal year, we
have adhered to consistent investment strategies and techniques. We reduced the
Fund's exposure to potentially rising interest rates during the fiscal year by
selling longer-duration U.S. Treasury bonds and buying shorter-duration and
higher-yielding mortgage-backed securities. We also made an effort to seek debt
obligations that are guaranteed by the U.S. Government and used to underwrite
small business loans. These securities are less liquid forms of debt
obligations, but tend to be higher-yielding and somewhat more protected against
prepayments and early calls than typical government-backed home mortgage
obligations.
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, including mortgage-
backed securities (the Salomon Brothers Treasury/Government Sponsored/Mortgage
Bond Index) and the universe of funds with similar investment objectives (the
Lipper General U.S. Government Fund Universe Average). We have chosen to use
the Salomon Brothers Index beginning with this year's Annual Report, instead of
the Lehman Brothers Government Bond Index that had been presented in prior
years. We believe that the Salomon Brothers Index provides a more accurate
basis for comparing the Fund's performance to the performance of the types of
fixed income securities in which the Fund invests. Both indexes are presented
on the following page in this year's Annual Report for comparison purposes.
Many market analysts predict that the Federal Reserve will raise short-term
interest rates again before the end of 1997. If this occurs, we expect the
resulting slowing of economic growth to thereafter cause a decline in interest
rates and a narrowing of the spread between inflation rates and the yields of
Treasury securities. In the event equity markets fail to advance during the
coming fiscal year, we will likely see a rebalancing of investor portfolios in
favor of fixed income securities. As soon as we see signs of a slowing economy,
combined with steady inflation, we will likely respond by increasing the Fund's
exposure to interest-sensitive U.S. Government securities.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
James C. Cusser
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,
SALOMON BROTHERS TREASURY/GOVERNMENT SPONSORED/MORTGAGE BOND INDEX,
AND THE LIPPER GENERAL U.S. GOVERNMENT FUND UNIVERSE AVERAGE
United
GovernmentLehmanSalomon Brothers Lipper
SecuritiesBrothers Treasury/ General U.S.
Fund,GovernmentGovernment Spon- Govt. Fund
Class Bondsored/ Mortgage Universe
A Shares Index Bond Index Average
-------------------------------- ----------
03/31/87 9,575 10,000 10,000 10,000
03/31/88 9,283 10,434 10,536 10,286
03/31/89 9,665 10,926 11,058 10,726
03/31/90 10,637 12,198 12,425 11,764
03/31/91 11,773 13,720 14,028 13,082
03/31/92 13,094 15,215 15,619 14,388
03/31/93 15,139 17,355 17,654 16,173
03/31/94 15,375 17,821 18,077 16,435
03/31/95 16,067 18,591 18,969 16,920
03/31/96 17,751 20,535 20,967 18,485
03/31/97 18,417 21,417 21,994 19,117
===== United Government Securities Fund, Inc., Class A shares*-$18,417
- - - - Lehman Brothers Government Bond Index - $21,417
+++++ Salomon Brothers Treasury/Government Sponsored Mortgage Index - $21,994
- ----- Lipper General U.S. Govt. Fund Universe Average - $19,117
*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
3/31/97 -0.66% 3.99%
5 Years Ended
3/31/97 6.13% N/A
10 Years Ended
3/31/97 6.29% N/A
Life of
Class Y +++ N/A 4.69%
+ 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 3/31/97.
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, 1997
- ----------------------------------------
DIVIDENDS PAID $0.32
=====
NET ASSET VALUE ON
3/31/97 $5.19
3/31/96 5.32
-----
CHANGE PER SHARE ($0.13)
=====
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 3-31-97 -0.66% 3.75%
5-year period ended 3-31-97 6.13% 7.06%
10-year period ended 3-31-97 6.29% 6.76%
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, 1997, United Government Securities Fund, Inc. had net assets
totaling $129,600,967 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on March 31, 1997, your Fund owned:
$37.97 Federal National Mortgage Association Bonds
20.55 Miscellaneous U.S. Government Backed Bonds
15.29 United States Treasury
11.17 Federal Home Loan Mortgage Corporation Bonds
9.53 Government National Mortgage Association Bonds
5.49 Cash and Cash Equivalents and Options
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1997
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 70 $ 73,858
7.5%, 9-1-2007 ........................ 160 160,163
8.0%, 2-1-2023 ........................ 2,872 2,888,145
6.5%, 11-1-2024 ....................... 2,561 2,404,396
7.0%, 12-1-2025 ....................... 9,342 8,947,747
Total ................................. 14,474,309
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,822 4,942,432
7.5%, 4-25-2002 ....................... 3,388 3,329,760
7.0%, 10-25-2003 ...................... 6,720 6,497,367
6.0%, 6-25-2007 ....................... 5,000 4,800,000
8.4%, 2-25-2009 ....................... 5,000 5,110,150
11.0%, 10-1-2020 ...................... 4,516 5,081,057
6.5%, 11-25-2020 ...................... 5,000 4,756,250
7.0%, 12-1-2023 ....................... 9,029 8,631,399
7.42%, 10-1-2025 ...................... 6,199 6,062,369
Total ................................. 49,210,784
Government National Mortgage Association:
9.5%, 5-20-2014 ....................... 14 14,531
8.5%, 5-15-2023 ....................... 2,148 2,201,933
7.0%, 7-15-2023 ....................... 3,985 3,824,605
9.75%, 11-15-2028 ..................... 2,948 3,203,089
10.5%, 3-15-2029 ...................... 1,034 1,134,143
7.75%, 10-15-2031 ..................... 1,996 1,979,976
Total ................................. 12,358,277
United States Treasury:
6.375%, 8-15-2002 ..................... 7,000 6,872,040
7.875%, 11-15-2004 .................... 7,000 7,392,630
5.875%, 11-15-2005 .................... 3,750 3,492,788
7.5%, 11-15-2016 ...................... 2,000 2,058,440
Total ................................. 19,815,898
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 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 $ 6,967,766
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 3,954 4,289,634
Synthetic Off-the-Run Treasuries,
Series 1994-2,
6.0%, 2-15-2009 ..................... 1,000 908,900
Tennessee Valley Authority,
5.98%, 4-1-2036 ..................... 10,000 10,003,600
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 ...................... 4,648 4,463,891
Total ............................... 26,633,791
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 94.51% $122,493,059
(Cost: $123,205,389)
Number of
Contracts
OPTIONS - 0.01%
June 109 Call Options on Treasury Note
Futures, Expires 5-17-97 .............. 100 $ 6,300
(Cost: $62,195)
Principal
Amount In
Thousands
SHORT-TERM SECURITIES - 4.77%
J.P. Morgan, 6.0% Repurchase
Agreement dated 3-31-97, to be
repurchased at $6,181,030 on 4-1-97* .. $ 6,180 $6,180,000
(Cost: $6,180,000)
TOTAL INVESTMENT SECURITIES - 99.29% $128,679,359
(Cost: $129,447,584)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.71% 921,608
NET ASSETS - 100.00% $129,600,967
Notes to Schedule of Investments
*Collateralized by $4,930,000 U.S. Treasury Notes, 10.375% due 11-15-2012;
market value and accrued interest aggregate $6,312,471.
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, 1997
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $128,679,359
Cash ............................................ 13,250
Receivables:
Interest ........................................ 1,462,433
Fund shares sold ................................ 243,724
Investment securities sold ...................... 4,714
Prepaid insurance premium ........................ 10,648
------------
Total assets .................................. 130,414,128
------------
Liabilities
Payable for Fund shares redeemed ................. 645,329
Dividends payable ................................ 94,197
Accrued service fee (Note 2) ..................... 36,992
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 22,942
Accrued accounting services fee (Note 2) ......... 3,333
Accrued management fee (Note 2) .................. 1,433
Other ............................................ 8,935
------------
Total liabilities ............................. 813,161
------------
Total net assets.............................. $129,600,967
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 249,879
Additional paid-in capital ...................... 134,441,581
Accumulated undistributed loss:
Accumulated undistributed net realized loss on
investment transactions ....................... (4,322,268)
Net unrealized depreciation in value of
Investments ................................... (768,225)
------------
Net assets applicable to outstanding units
of capital ................................... $129,600,967
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.19
Class Y .......................................... $5.19
Capital shares outstanding
Class A .......................................... 24,860,850
Class Y .......................................... 127,030
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, 1997
Investment Income
Interest and amortization (Note 1B) .............. $9,796,938
----------
Expenses (Note 2):
Investment management fee ....................... 559,782
Transfer agency and dividend disbursing - Class A 312,596
Service fee - Class A ........................... 214,485
Accounting services fee ......................... 40,000
Audit fees ...................................... 14,205
Custodian fees .................................. 10,478
Legal fees ...................................... 4,921
Shareholder servicing - Class Y ................. 916
Other ........................................... 94,988
-----------
Total expenses ................................ 1,252,371
-----------
Net investment income ........................ 8,544,567
-----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on securities .................. (1,512,753)
Realized net gain on options ..................... 62,323
-----------
Net realized loss on investments ................ (1,450,430)
Unrealized depreciation in value of investments
during the period ............................... (1,927,389)
-----------
Net loss on investments ......................... (3,377,819)
-----------
Net increase in net assets resulting from
operations ................................... $5,166,748
===========
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
-------------------------
1997 1996
------------ ------------
Increase in Net Assets
Operations:
Net investment income ............ $ 8,544,567 $ 9,643,146
Realized net gain (loss)
on investments ................. (1,450,430) 1,906,921
Unrealized appreciation
(depreciation) ................. (1,927,389) 3,688,092
------------ ------------
Net increase in net assets
resulting from operations ..... 5,166,748 15,238,159
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (8,507,712) (9,639,561)
Class Y ............................. (36,855) (3,585)
------------ ------------
(8,544,567) (9,643,146)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,091,068 and 2,816,516
shares, respectively) ......... 11,045,042 15,113,673
Class Y (36,828 and 110,748
shares, respectively) ............ 195,100 598,202
Proceeds from reinvestment of
dividends:
Class A (1,449,154 and 1,617,273
shares, respectively) ......... 7,627,374 8,677,824
Class Y (6,957 and 599
shares, respectively) ............ 36,605 3,186
Payments for shares redeemed:
Class A (6,258,384 and 6,026,762
shares, respectively) ......... (32,963,369) (32,333,592)
Class Y (18,692 and 9,410
shares, respectively) ............ (98,116) (51,097)
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (14,157,364) (7,991,804)
------------ ------------
Total decrease ................ (17,535,183) (2,396,791)
Net Assets
Beginning of period ............... 147,136,150 149,532,941
------------ ------------
End of period ..................... $129,600,967 $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 fiscal year ended March 31,
-----------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.32 $5.13 $5.23 $5.44 $5.01
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.33 0.34 0.32 0.30 0.33
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) 0.19 (0.10) (0.21) 0.43
----- ----- ----- ----- -----
Total from investment
operations ....... 0.20 0.53 0.22 0.09 0.76
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.33) (0.34) (0.32) (0.30) (0.33)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.19 $5.32 $5.13 $5.23 $5.44
===== ===== ===== ===== =====
Total return* ...... 3.75% 10.48% 4.49% 1.56% 15.62%
Net assets, end
of period (000
omitted) ......... $128,942$146,594$149,533$176,649$177,167
Ratio of expenses
to average net
assets ........... 0.91% 0.83% 0.82% 0.75% 0.71%
Ratio of net investment
income to average
net assets ....... 6.17% 6.34% 6.30% 5.50% 6.29%
Portfolio turnover
rate ............. 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.
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
fiscal period
year from 9/27/95*
ended through
3/31/97 3/31/96
-------- --------
Net asset value,
beginning of period $5.32 $5.33
----- -----
Income from investment
operations:
Net investment
income .......... 0.34 0.17
Net realized and
unrealized loss on
investments...... (0.13) (0.01)
----- -----
Total from investment
operations ........ 0.21 0.16
----- -----
Less dividends declared
from net investment
income ............ (0.34) (0.17)
----- -----
Net asset value,
end of period ..... $5.19 $5.32
===== =====
Total return ....... 3.99% 3.04%
Net assets, end of
period (000
omitted) ......... $659 $542
Ratio of expenses
to average net
assets ............ 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.41% 6.40%**
Portfolio
turnover rate ..... 34.18% 63.05%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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. At
March 31, 1997, the Fund reclassified $1,725,488 between additional paid-
in-capital and accumulated undistributed net realized losses. Net
investment income, net realized gains and net assets were not affected by
this change.
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 $15.0
billion of combined net assets at March 31, 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
($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 gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$274,363, out of which W&R paid sales commissions of $157,720 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 $5,641, 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 $46,265,719 while
proceeds from maturities and sales aggregated $60,606,296. Purchases of short-
term securities aggregated $741,467,000 while proceeds from maturities and sales
aggregated $741,427,000.
For Federal income tax purposes, cost of investments owned at March 31,
1997 was $129,650,507, resulting in net unrealized depreciation of $971,148, of
which $1,328,335 related to appreciated securities and $2,299,483 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 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 March 31, 1997, the related statements of
operations and changes in net assets for the year then ended, and the
financial highlights for the year then ended. 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 audit.
The financial statements and the financial highlights of the Fund for
each of the periods presented in the four-year period ended March 31,
1996 were audited by other auditors whose report, dated May 10, 1996,
expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audit 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 March 31, 1997 by correspondence with
the custodian and brokers. 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 audit provides 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 the
United Government Securities Fund, Inc. as of March 31, 1997, the results
of its operations, the changes in its net assets, and the financial
highlights for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1997
<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
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
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
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1011A(3-97)
printed on recycled paper
