United
Government
Securities
Fund, Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1998<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, 1998
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
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.
FOUNDED: 1982
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1998
- ----------------------------------------
DIVIDENDS PAID $0.16
=====
NET ASSET VALUE ON
9/30/98 $5.62
3/31/98 5.46
-----
CHANGE PER SHARE $0.16
=====
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 9-30-98 6.36% 11.08%
5-year period ended 9-30-98 5.45% 6.37%
10-year period ended 9-30-98 8.15% 8.62%
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, 1998,United Government Securities Fund, Inc. had net assets
totaling $136,789,617 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on September 30, 1998, your Fund owned:
$48.64 Federal National Mortgage Association Bonds
21.27 Miscellaneous U.S. Government Backed Bonds
17.21 Federal Home Loan Mortgage Corporation Bonds
9.53 Government National Mortgage Association Bonds
2.07 United States Treasury
1.28 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 36 $ 38,703
7.5%, 9-1-2007 ........................ 97 99,264
6.5%, 9-25-2018 ....................... 2,500 2,622,650
7.0%, 1-15-2019 ....................... 4,500 4,601,250
6.25%, 1-15-2021 ...................... 3,500 3,573,290
8.0%, 2-1-2023 ........................ 1,963 2,033,058
6.5%, 11-1-2024 ....................... 2,125 2,166,796
7.0%, 12-1-2025 ....................... 8,190 8,407,494
Total ................................. 23,542,505
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,111 4,199,559
7.5%, 4-25-2002 ....................... 2,553 2,621,335
5.98%, 6-18-2003 ...................... 2,000 2,062,500
5.875%, 7-16-2003 ..................... 2,000 2,058,120
7.0%, 10-25-2003 ...................... 6,171 6,354,080
7.135%, 6-1-2007 ...................... 5,643 6,172,054
7.15%, 6-1-2007 ....................... 2,289 2,502,893
8.4%, 2-25-2009 ....................... 5,000 5,228,100
0.0%, 2-12-2018 ....................... 7,000 2,300,480
0.0%, 10-9-2019 ....................... 23,750 7,251,112
7.0%, 9-25-2020 ....................... 500 524,530
11.0%, 10-1-2020 ...................... 2,978 3,345,041
6.5%, 8-25-2021 ....................... 7,000 7,355,460
7.0%, 12-1-2023 ....................... 7,381 7,585,857
7.42%, 10-1-2025 ...................... 6,114 6,967,228
Total ................................. 66,528,349
Government National Mortgage Association:
8.5%, 5-15-2023 ....................... 2,113 2,229,679
7.0%, 7-15-2023 ....................... 3,381 3,491,333
7.0%, 8-20-2027 ....................... 933 960,484
9.75%, 11-15-2028 ..................... 2,927 3,161,776
10.5%, 3-15-2029 ...................... 1,028 1,121,073
7.75%, 10-15-2031 ..................... 1,978 2,075,466
Total ................................. 13,039,811
United States Treasury:
6.5%, 10-15-2006 ...................... 1,000 1,135,470
7.5%, 11-15-2016 ...................... 1,000 1,272,970
0.0%, 2-15-2019 ....................... 1,250 418,412
Total ................................. 2,826,852
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
SEPTEMBER 30, 1998
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 ................... $ 7,173 $ 7,872,690
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................... 7,750 8,392,940
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 3,629,045
1998-1 Class 2-B,
7.0%, 5-15-2005 ..................... 3,000 3,134,040
1998-3 Class B,
6.5%, 5-15-2020 ..................... 1,500 1,558,125
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 ...................... 4,308 4,512,826
Total ............................... 29,099,666
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 98.72% $135,037,183
(Cost: $127,540,507)
SHORT-TERM SECURITIES - 0.59%
J.P. Morgan, 5.15% Repurchase
Agreement dated 9-30-98, to be
repurchased at $815,117 on 10-1-98* ... 815 $ 815,000
(Cost: $815,000)
TOTAL INVESTMENT SECURITIES - 99.31% $135,852,183
(Cost: $128,355,507)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.69% 937,434
NET ASSETS - 100.00% $136,789,617
Notes to Schedule of Investments
*Collateralized by $830,441 U.S. Treasury Bonds, 8.5% due 2-15-2020; market
value and accrued interest aggregate $836,710.
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, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $135,852
Cash ............................................ 11
Receivables:
Interest ........................................ 1,401
Fund shares sold ................................ 185
Investment securities sold ...................... 2
Prepaid insurance premium ........................ 12
--------
Total assets .................................. 137,463
--------
Liabilities
Payable to Fund shareholders ..................... 519
Dividends payable ................................ 89
Accrued service fee (Note 2) ..................... 26
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 23
Accrued accounting services fee (Note 2) ......... 3
Accrued management fee (Note 2) .................. 1
Other ............................................ 12
--------
Total liabilities ............................. 673
--------
Total net assets.............................. $136,790
========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 243
Additional paid-in capital ...................... 130,806
Accumulated undistributed income:
Accumulated undistributed net realized loss on
investment transactions ....................... (1,756)
Net unrealized appreciation in value of
investments ................................... 7,497
--------
Net assets applicable to outstanding units
of capital ................................... $136,790
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.62
Class Y .......................................... $5.62
Capital shares outstanding
Class A .......................................... 24,048
Class Y .......................................... 292
Capital shares authorized .......................... 3,000,000
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1998
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $4,513
------
Expenses (Note 2):
Investment management fee ....................... 260
Service fee - Class A ........................... 169
Transfer agency and dividend disbursing - Class A 131
Accounting services fee ......................... 20
Audit fees ...................................... 6
Custodian fees .................................. 6
Distribution fee - Class A ...................... 2
Legal fees ...................................... 2
Shareholder servicing - Class Y ................. 1
Other ........................................... 64
------
Total expenses ................................ 661
------
Net investment income ........................ 3,852
------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on investments .................. 980
Unrealized appreciation in value of investments
during the period ............................... 2,806
------
Net gain on investments ....................... 3,786
------
Net increase in net assets resulting from
operations ................................. $7,638
======
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the For the
six months fiscal year
ended ended
September 30, March 31,
1998 1998
------------- -----------
Increase in Net Assets
Operations:
Net investment income ............ $ 3,852 $ 7,980
Realized net gain
on investments ................. 980 1,267
Unrealized appreciation .......... 2,806 5,459
-------- --------
Net increase in net assets
resulting from operations ..... 7,638 14,706
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (3,800) (7,909)
Class Y .......................... (52) (71)
-------- --------
(3,852) (7,980)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (3,115,318 and 2,736,771
shares, respectively) ......... 17,148 14,751
Class Y (86,154 and 357,555
shares, respectively) ......... 475 1,951
Proceeds from reinvestment of
dividends:
Class A (628,924 and 1,331,822
shares, respectively) ......... 3,459 7,147
Class Y (9,281 and 12,802
shares, respectively) ......... 51 69
Payments for shares redeemed:
Class A (3,634,464 and 4,991,427
shares, respectively) ......... (19,967) (26,766)
Class Y (276,117 and 24,157
shares, respectively) ......... (1,511) (130)
-------- --------
Net decrease in net
assets resulting from capital
share transactions ............ (345) (2,978)
-------- --------
Total increase ................ 3,441 3,748
Net Assets
Beginning of period ............... 133,349 129,601
-------- --------
End of period ..................... $136,790 $133,349
======== ========
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 -----------------------------------
9/30/98 1998 1997 1996 1995 1994
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.46 $5.19 $5.32 $5.13 $5.23 $5.44
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.16 0.33 0.33 0.34 0.32 0.30
Net realized and
unrealized gain
(loss) on
investments ..... 0.16 0.27 (0.13) 0.19 (0.10) (0.21)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.32 0.60 0.20 0.53 0.22 0.09
----- ----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.16) (0.33) (0.33) (0.34) (0.32) (0.30)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $5.62 $5.46 $5.19 $5.32 $5.13 $5.23
===== ===== ===== ===== ===== =====
Total return* ...... 5.97% 11.84% 3.75% 10.48% 4.49% 1.56%
Net assets, end
of period (in
millions) ........ $135 $131 $129 $146 $150 $177
Ratio of expenses
to average net
assets ........... 1.00%** 0.89% 0.91% 0.83% 0.82% 0.75%
Ratio of net investment
income to average
net assets ....... 5.82%** 6.14% 6.17% 6.34% 6.30% 5.50%
Portfolio turnover
rate ............. 19.01% 35.18% 34.18% 63.05% 41.57% 122.62%
*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 fiscal period
six year ended from
months March 31, 9/27/95*
ended -------------- through
9/30/98 1998 1997 3/31/96
------- ------ ------ --------
Net asset value,
beginning of period $5.46 $5.19 $5.32 $5.33
----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.17 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments ..... 0.16 0.27 (0.13) (0.01)
----- ----- ----- -----
Total from investment
operations ....... 0.33 0.61 0.21 0.16
----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.17) (0.34) (0.34) (0.17)
----- ----- ----- -----
Net asset value,
end of period .... $5.62 $5.46 $5.19 $5.32
===== ===== ===== =====
Total return ....... 6.10% 12.02% 3.99% 3.04%
Net assets, end of
period (in
millions) ........ $2 $2 $1 $1
Ratio of expenses
to average net
assets ........... 0.74%** 0.66% 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ........... 6.09%** 6.37% 6.41% 6.40%**
Portfolio
turnover rate .... 19.01% 35.18% 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, 1998
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 carryovers.
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.
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.
<PAGE>
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 $18.9
billion of combined net assets at September 30, 1998) 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
$172,421, out of which W&R paid sales commissions of $101,314 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 Class A 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.
<PAGE>
The Fund paid Directors' fees of $2,275, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., 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 $35,302,091 while
proceeds from maturities and sales aggregated $24,378,703. Purchases of short-
term securities aggregated $932,349,000 while proceeds from maturities and sales
aggregated $942,924,000.
For Federal income tax purposes, cost of investments owned at September 30,
1998 was $128,436,818, resulting in net unrealized appreciation of $7,415,365,
of which all related to appreciated securities and none to depreciated
securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $440,171 during the year ended March 31, 1998, which included losses of
$719,357 deferred from the year ended March 31, 1997 (see discussion below).
This capital gain net income was entirely offset by utilization of capital loss
carryovers. Remaining capital loss carryovers aggregated $2,645,159 at March
31, 1998, and are available to offset future realized capital gain net income
for Federal income tax purposes through the following fiscal year-ends:
$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 -- Multiclass Operations
On July 31, 1995, the Fund was authorized to offer 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, 1998, and 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 fiscal year ended March 31, 1998, 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, 1998 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 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, 1998, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 6, 1998
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
James C. Cusser, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional 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(9-98)
printed on recycled paper
