United
Government
Securities
Fund, Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1998
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1998
Dear Shareholder:
This report relates to the operation of United Government Securities Fund
for the fiscal year ended March 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Economic conditions during the past fiscal year were favorable for bond
investments. Over the course of the past twelve months, long-term U.S. Treasury
rates declined, while shorter-term rates were stable. The Federal Reserve
raised the federal funds rate just prior to the beginning of the Fund's fiscal
year. This tightening was just sufficient enough to slow the economy and keep
inflation in check. Later in the year, the devaluation of Asian currencies
increased the value of the U.S. Dollar, magnified the effect of the Federal
Reserve's earlier restraining action and lowered rates further. The domestic
economy remained strong, with business and personal income expanding, the cost
of living remaining steady and government spending slowing. The first quarter
of 1998 was especially good for mortgage-backed securities due to lower market
volatility and steady interest rates.
The Fund continued its general investment strategies of prior years. The
Fund maintained a slightly more sensitive to interest rate posture than most
market indexes and a greater-than-market weighting in mortgage-backed
securities. Specifically, we purchased zero coupon Treasury securities at the
beginning of the fiscal year when we saw that the economy was slowing and that
real rates of return were historically high. The addition of zero coupon bonds
to the Fund's portfolio provided capital gains and contributed significantly to
the Fund's performance. During the last fiscal quarter, we reduced the Fund's
exposure to zero coupon bonds, believing that much of the rally was behind us,
bringing the Fund closer to a market-average sensitivity to interest rates. We
invested the proceeds of these securities in mortgage-backed securities that
provide greater yield than zero coupon bonds.
The strategies and techniques we applied resulted in the Fund slightly
outperforming 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).
Factors that will affect the direction of interest rates, and consequently
the Fund's performance, during the next fiscal year include the continuing
development of the Asian currency crisis and its impact on the U.S. economy, and
plans in Washington for spending any anticipated fiscal surplus. We believe
that the direction of interest rates will depend largely on government spending
and whether Congress continues to reduce the long-term capital needs associated
with Social Security and other federal entitlements, rather than the effects of
the Asian crisis or the influence of our domestic economic productivity we have
witnessed over the past several years.
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 Salomon Brothers Treasury/Government Sponsored/Mortgage Bond Index
and the Lipper General U.S. Government Fund Universe Average
United
GovernmentSalomon Brothers Lipper
Securities Treasury/ General U.S.
Fund,Government Spon- Govt. Fund
Classsored/ Mortgage Universe
A Shares Bond Index Average
-------------------------- ------------
03/31/88 Purchase 9,575 10,000 10,000
03/31/89 9,969 10,495 10,428
03/31/90 10,972 11,793 11,436
03/31/91 12,144 13,315 12,718
03/31/92 13,506 14,824 13,987
03/31/93 15,615 16,756 15,723
03/31/94 15,860 17,157 15,978
03/31/95 16,572 18,004 16,449
03/31/96 18,310 19,900 17,970
03/31/97 18,997 20,875 18,585
03/31/98 21,247 23,324 20,711
===== United Government Securities Fund, Inc., Class A Shares*-$21,247
+++++ Salomon Brothers Treasury/Government Sponsored/Mortgage Bond Index -
$23,324
- ----- Lipper General U.S. Govt. Fund Universe Average - $20,711
*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
3/31/98 7.09% 12.02%
5 Years Ended
3/31/98 5.43% N/A
10 Years Ended
3/31/98 7.83% N/A
Life of
Class Y +++ N/A 7.55%
+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 3/31/98.
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.
FOUNDED: 1982
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- ----------------------------------------
DIVIDENDS PAID $0.33
=====
NET ASSET VALUE ON
3/31/98 $5.46
3/31/97 5.19
-----
CHANGE PER SHARE $0.27
=====
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 3-31-98 7.09% 11.84%
5-year period ended 3-31-98 5.43% 6.35%
10-year period ended 3-31-98 7.83% 8.29%
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, 1998, United Government Securities Fund, Inc. had net assets
totaling $133,349,096 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on March 31, 1998, your Fund owned:
$42.65 Federal National Mortgage Association Bonds
18.18 Miscellaneous U.S. Government Backed Bonds
13.93 Federal Home Loan Mortgage Corporation Bonds
10.02 Government National Mortgage Association Bonds
9.87 Cash and Cash Equivalents
5.35 United States Treasury
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 40 $ 42,726
7.5%, 9-1-2007 ........................ 120 123,825
7.0%, 1-15-2019 ....................... 4,500 4,585,770
8.0%, 2-1-2023 ........................ 2,458 2,544,833
6.5%, 11-1-2024 ....................... 2,313 2,298,586
7.0%, 12-1-2025 ....................... 8,880 8,976,534
Total ................................. 18,572,274
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 4,133 4,304,345
7.5%, 4-25-2002 ....................... 2,858 2,896,011
7.0%, 10-25-2003 ...................... 6,675 6,719,186
7.135%, 6-1-2007 ...................... 5,669 5,933,376
7.15%, 6-1-2007 ....................... 2,299 2,410,724
6.0%, 6-25-2007 ....................... 5,000 4,971,850
8.4%, 2-25-2009 ....................... 5,000 5,157,850
7.0%, 9-25-2020 ....................... 500 511,560
11.0%, 10-1-2020 ...................... 3,543 4,053,129
6.5%, 11-25-2020 ...................... 5,000 5,028,100
7.0%, 12-1-2023 ....................... 8,166 8,245,073
7.42%, 10-1-2025 ...................... 6,144 6,639,475
Total ................................. 56,870,679
Government National Mortgage Association:
8.5%, 5-15-2023 ....................... 2,125 2,241,531
7.0%, 7-15-2023 ....................... 3,650 3,695,274
7.0%, 8-20-2027 ....................... 978 984,728
9.75%, 11-15-2028 ..................... 2,934 3,240,391
10.5%, 3-15-2029 ...................... 1,030 1,147,533
7.75%, 10-15-2031 ..................... 1,984 2,059,389
Total ................................. 13,368,846
United States Treasury:
6.375%, 8-15-2002 ..................... 1,000 1,027,030
7.875%, 11-15-2004 .................... 2,000 2,234,380
7.5%, 11-15-2016 ...................... 1,000 1,166,090
0.0%, 2-15-2019 ....................... 9,500 2,704,365
Total ................................. 7,131,865
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 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 $ 7,338,280
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................... 5,500 5,670,940
United States Department of Veterans Affairs,
Guaranteed REMIC Pass-Through Certificates,
Vendee Mortgage Trust:
1998-1 Class 2-B,
7.0%, 5-15-2005 ..................... 3,000 3,072,180
1997-2 Class C,
7.5%, 8-15-2017 ..................... 3,500 3,579,835
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 ...................... 4,488 4,587,050
Total ............................... 24,248,285
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 90.13% $120,191,949
(Cost: $115,500,810)
SHORT-TERM SECURITIES - 8.54%
J.P. Morgan, 5.75% Repurchase
Agreement dated 3-31-98, to be
repurchased at $11,391,819 on 4-1-98* . 11,390 $ 11,390,000
(Cost: $11,390,000)
TOTAL INVESTMENT SECURITIES - 98.67% $131,581,949
(Cost: $126,890,810)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.33% 1,767,147
NET ASSETS - 100.00% $133,349,096
Notes to Schedule of Investments
*Collateralized by $8,210,000 U.S. Treasury Bonds, 12.0% due 5-15-2005; market
value and accrued interest aggregate $11,519,998.
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, 1998
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $131,581,949
Cash ............................................ 9,878
Receivables:
Fund shares sold ................................ 1,893,424
Interest ........................................ 1,063,849
Investment securities sold ...................... 7,847
Prepaid insurance premium ........................ 11,379
------------
Total assets .................................. 134,568,326
------------
Liabilities
Payable to Fund shareholders ..................... 1,061,309
Dividends payable ................................ 90,423
Accrued service fee (Note 2) ..................... 30,427
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 20,669
Accrued accounting services fee (Note 2) ......... 3,333
Accrued management fee (Note 2) .................. 1,416
Other ............................................ 11,653
------------
Total liabilities ............................. 1,219,230
------------
Total net assets.............................. $133,349,096
============
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 244,112
Additional paid-in capital ...................... 131,150,090
Accumulated undistributed income:
Accumulated undistributed net realized loss on
investment transactions ....................... (2,736,245)
Net unrealized appreciation in value of
investments ................................... 4,691,139
------------
Net assets applicable to outstanding units
of capital ................................... $133,349,096
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.46
Class Y .......................................... $5.46
Capital shares outstanding
Class A .......................................... 23,938,016
Class Y .......................................... 473,230
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, 1998
Investment Income
Interest and amortization (Note 1B) .............. $ 9,135,432
-----------
Expenses (Note 2):
Investment management fee ....................... 516,182
Transfer agency and dividend disbursing - Class A 287,088
Service fee - Class A ........................... 197,980
Accounting services fee ......................... 40,000
Custodian fees .................................. 11,838
Audit fees ...................................... 9,815
Legal fees ...................................... 6,372
Shareholder servicing - Class Y ................. 2,379
Other ........................................... 84,225
-----------
Total expenses ................................ 1,155,879
-----------
Net investment income ........................ 7,979,553
-----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities ................... 1,328,955
Realized net loss on options ..................... (62,195)
-----------
Net realized gain on investments ................ 1,266,760
Unrealized appreciation in value of investments
during the period ............................... 5,459,364
-----------
Net gain on investments ....................... 6,726,124
-----------
Net increase in net assets resulting from
operations ................................. $14,705,677
===========
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
-------------------------
1998 1997
------------ ------------
Increase (Decrease) in Net Assets
Operations:
Net investment income ............ $ 7,979,553 $ 8,544,567
Realized net gain (loss)
on investments ................. 1,266,760 (1,450,430)
Unrealized appreciation
(depreciation) ................. 5,459,364 (1,927,389)
------------ ------------
Net increase in net assets
resulting from operations ..... 14,705,677 5,166,748
------------ ------------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (7,909,086) (8,507,712)
Class Y .......................... (70,467) (36,855)
------------ ------------
(7,979,553) (8,544,567)
------------ ------------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,736,771 and 2,091,068
shares, respectively) ......... 14,750,671 11,045,042
Class Y (357,555 and 36,828
shares, respectively) ......... 1,951,228 195,100
Proceeds from reinvestment of
dividends:
Class A (1,331,822 and 1,449,154
shares, respectively) ......... 7,147,554 7,627,374
Class Y (12,802 and 6,957
shares, respectively) ......... 69,152 36,605
Payments for shares redeemed:
Class A (4,991,427 and 6,258,384
shares, respectively) ......... (26,766,532) (32,963,369)
Class Y (24,157 and 18,692
shares, respectively) ......... (130,068) (98,116)
------------ ------------
Net decrease in net
assets resulting from capital
share transactions ............ (2,977,995) (14,157,364)
------------ ------------
Total increase (decrease) ..... 3,748,129 (17,535,183)
Net Assets
Beginning of period ............... 129,600,967 147,136,150
------------ ------------
End of period ..................... $133,349,096 $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 fiscal year ended March 31,
-------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.19 $5.32 $5.13 $5.23 $5.44
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.33 0.33 0.34 0.32 0.30
Net realized and
unrealized gain
(loss) on
investments ..... 0.27 (0.13) 0.19 (0.10) (0.21)
----- ----- ----- ----- -----
Total from investment
operations ....... 0.60 0.20 0.53 0.22 0.09
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.33) (0.33) (0.34) (0.32) (0.30)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.46 $5.19 $5.32 $5.13 $5.23
===== ===== ===== ===== =====
Total return* ...... 11.84% 3.75% 10.48% 4.49% 1.56%
Net assets, end
of period (000
omitted) ......... $130,764$128,942$146,594$149,533$176,649
Ratio of expenses
to average net
assets ........... 0.89% 0.91% 0.83% 0.82% 0.75%
Ratio of net investment
income to average
net assets ....... 6.14% 6.17% 6.34% 6.30% 5.50%
Portfolio turnover
rate ............. 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.
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 year period
ended March 31, from 9/27/95*
----------------------- through
1998 1997 3/31/96
-------- -------- --------
Net asset value,
beginning of period $5.19 $5.32 $5.33
----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments...... 0.27 (0.13) (0.01)
----- ----- -----
Total from investment
operations ........ 0.61 0.21 0.16
----- ----- -----
Less dividends declared
from net investment
income ............ (0.34) (0.34) (0.17)
----- ----- -----
Net asset value,
end of period ..... $5.46 $5.19 $5.32
===== ===== =====
Total return ....... 12.02% 3.99% 3.04%
Net assets, end of
period (000
omitted) ......... $2,585 $659 $542
Ratio of expenses
to average net
assets ............ 0.66% 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ............ 6.37% 6.41% 6.40%**
Portfolio
turnover rate ..... 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
MARCH 31, 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 carryforwards. At
March 31, 1998, the Fund reclassified $319,263 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 $19.8
billion of combined net assets at March 31, 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
$292,989, out of which W&R paid sales commissions of $169,910 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.
The Fund paid Directors' fees of $4,733, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and 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 $44,229,113 while
proceeds from maturities and sales aggregated $53,537,403. Purchases of short-
term securities aggregated $1,074,995,000 while proceeds from maturities and
sales aggregated $1,069,785,000.
For Federal income tax purposes, cost of investments owned at March 31,
1998 was $126,986,501, resulting in net unrealized appreciation of $4,595,448,
of which $4,747,463 related to appreciated securities and $152,15 related 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 expire as follows: $1,611,706 at March 31, 2003; $343,195 at
March 31, 2004; and $690,258 at 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 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 March 31, 1998, and the related statements of operations for the
year then ended and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. The financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on the 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 March
31, 1998 by correspondence with the custodian. 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 March 31, 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
May 8, 1998
<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>
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
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
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 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
NUR1011A(3-98)
printed on recycled paper
