United
Government
Securities
Fund, Inc.
ANNUAL
REPORT
---------------------------------------
For the fiscal year ended March 31, 1999
<PAGE>
MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1999
Dear Shareholder:
This report relates to the operation of United Government Securities Fund for
the fiscal year ended March 31, 1999. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
During the past fiscal year, Treasury interest rates fell dramatically and yet
nearly every other government security declined in value relative to U.S.
Treasury securities. One proximate cause for this decline was Russia defaulting
on its bonded debt and other countries threatening to follow suit. Many of the
world's central banks reduced their short term interest rates in order to inject
financial liquidity into the financial markets. In light of the various
financial crises around the world, the U.S. government securities market was
viewed as one of the few legitimate places to invest.
Over the course of the fiscal year, the Fund purchased longer-term U.S. Treasury
bonds. Unfortunately for short-term profit's sake, the Fund was primarily
invested in U.S. government-guaranteed mortgage securities, which are less
liquid than U.S. Treasury securities. Although these securities tend to be
higher yielding, they were not as appealing to the fearful international
investor as Treasury bonds. Because mortgage-backed securities tend to have
greater prepayments as interest rates decline, the average maturity of the Fund
shortened as rates declined during much of the fiscal year. However, when
interest rates rose in the first quarter of 1999, mortgage-backed securities
regained their appeal. The Fund also benefited from putable bonds issued by the
Tennessee Valley Authority. Consistent with seeking long-term performance for
the Fund, we refrained from active trading during the financial upheaval of
1998.
The strategies and techniques we applied resulted in the Fund modestly
underperforming the index that represents 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 outperforming the universe of funds with similar investment
objectives (the Lipper General U.S. Government Fund Universe Average). Both
indexes are charted on the following page.
Worldwide inflation remains low and U.S. interest rates remain higher than other
developed nations. The Federal Reserve maintains, in our opinion, a tight
monetary policy, especially relative to the underlying inflation rate. For
these reasons, we believe that interest rates can fall further, but we do not
expect that the interest rate environment will be as volatile as it has been in
the recent past.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
James C. Cusser
Manager, United Government Securities Fund, Inc.
<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
-------------------------- ------------
03/31/89 Purchase 9,575 10,000 10,000
03/31/90 10,538 11,236 10,967
03/31/91 11,664 12,686 12,196
03/31/92 12,972 14,124 13,414
03/31/93 14,998 15,965 15,078
03/31/94 15,232 16,348 15,323
03/31/95 15,917 17,154 15,774
03/31/96 17,586 18,961 17,234
03/31/97 18,246 19,890 17,823
03/31/98 20,407 22,223 19,862
03/31/99 21,517 23,683 20,914
===== United Government Securities Fund, Inc., Class A Shares*-$21,517
+++++ Salomon Brothers Treasury/Government Sponsored/Mortgage Bond Index -
$23,683
- ----- Lipper General U.S. Govt. Fund Universe Average - $20,914
*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
3/31/99 0.96% 5.71%
5 Years Ended
3/31/99 6.23% N/A
10 Years Ended
3/31/99 7.96% N/A
Life of
Class Y +++ N/A 7.02%
+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 3/31/99.
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
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1999
- ----------------------------------------
DIVIDENDS PAID $0.32
=====
NET ASSET VALUE ON
3/31/99 $ 5.43
3/31/98 5.46
------
CHANGE PER SHARE $(0.03)
======
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 3-31-99 0.96% 5.44%
5-year period ended 3-31-99 6.23% 7.15%
10-year period ended 3-31-99 7.96% 8.43%
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, 1999, United Government Securities Fund, Inc. had net assets
totaling $136,448,160 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100 you
had invested on March 31, 1999, your Fund owned:
$37.17 Federal National Mortgage Association Bonds
22.23 Miscellaneous U.S. Government Backed Bonds
15.67 Federal Home Loan Mortgage Corporation Bonds
8.43 United States Treasury
8.35 Government National Mortgage Association Bonds
8.15 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-2003 ....................... $ 22 $ 23,475
7.5%, 9-1-2007 ........................ 70 71,261
6.5%, 9-25-2018 ....................... 2,500 2,535,150
7.0%, 1-15-2019 ....................... 4,500 4,578,750
6.25%, 1-15-2021 ...................... 3,500 3,520,755
8.0%, 2-1-2023 ........................ 1,500 1,560,114
6.5%, 11-1-2024 ....................... 1,970 1,964,835
7.0%, 12-1-2025 ....................... 7,022 7,126,962
Total ................................. 21,381,302
Federal National Mortgage Association:
8.5%, 8-1-2001 ........................ 3,859 3,899,518
5.98%, 6-18-2003 ...................... 2,000 2,000,940
5.875%, 7-16-2003 ..................... 2,000 1,995,000
7.0%, 10-25-2003 ...................... 5,649 5,634,421
7.135%, 6-1-2007 ...................... 5,616 5,950,830
7.15%, 6-1-2007 ....................... 2,278 2,416,073
8.4%, 2-25-2009 ....................... 4,843 5,009,399
0.0%, 2-12-2018 ....................... 2,500 747,975
7.0%, 9-25-2020 ....................... 500 508,435
11.0%, 10-1-2020 ...................... 2,507 2,809,044
6.5%, 8-25-2021 ....................... 7,000 6,983,620
7.0%, 12-1-2023 ....................... 6,338 6,424,659
7.42%, 10-1-2025 ...................... 6,083 6,344,850
Total ................................. 50,724,764
Government National Mortgage Association:
8.5%, 5-15-2023 ....................... 2,101 2,279,599
7.0%, 7-15-2023 ....................... 2,941 2,988,855
7.0%, 8-20-2027 ....................... 798 806,648
9.75%, 11-15-2028 ..................... 2,919 3,196,239
7.75%, 10-15-2031 ..................... 1,972 2,128,130
Total ................................. 11,399,471
United States Treasury:
6.5%, 8-15-2005 ....................... 2,500 2,650,775
6.5%, 10-15-2006 ...................... 1,000 1,065,310
6.125%, 11-15-2027 .................... 7,500 7,783,575
Total ................................. 11,499,660
See Notes to Schedule of Investments on page 7.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 1999
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 ................... $ 6,853 $ 7,051,262
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................... 7,750 7,812,543
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 3,587,500
1998-1 Class 2-B,
7.0%, 6-15-2019 ..................... 3,000 3,057,180
1998-3 Class B,
6.5%, 5-15-2020 ..................... 1,500 1,510,770
1999-1 Class 2-B,
6.5%, 8-15-2020 ..................... 3,000 3,050,550
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 ...................... 4,173 4,256,621
Total ............................... 30,326,426
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 91.85% $125,331,623
(Cost: $122,952,831)
SHORT-TERM SECURITIES - 7.84%
J.P. Morgan Securities Inc., 4.8% Repurchase
Agreement dated 3-31-99, to be
repurchased at $10,696,426 on 4-1-99* . 10,695 $ 10,695,000
(Cost: $10,695,000)
TOTAL INVESTMENT SECURITIES - 99.69% $136,026,623
(Cost: $133,647,831)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.31% 421,537
NET ASSETS - 100.00% $136,448,160
Notes to Schedule of Investments
*Collateralized by $7,009,000 U.S. Treasury Bonds, 12.5% due 8-15-2014; market
value and accrued interest aggregate $10,767,576.
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, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $136,027
Cash ............................................ 21
Receivables:
Interest ........................................ 1,263
Fund shares sold ................................ 177
Investment securities sold ...................... 1
Prepaid insurance premium ........................ 11
--------
Total assets .................................. 137,500
--------
Liabilities
Payable to Fund shareholders ..................... 927
Dividends payable ................................ 49
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 34
Accrued service fee (Note 2) ..................... 24
Accrued accounting services fee (Note 2) ......... 3
Accrued distribution fee (Note 2) ................ 2
Accrued management fee (Note 2) .................. 1
Other ............................................ 12
--------
Total liabilities ............................. 1,052
--------
Total net assets.............................. $136,448
========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 251
Additional paid-in capital ...................... 135,362
Accumulated undistributed income:
Accumulated undistributed net realized loss on
investment transactions ....................... (1,544)
Net unrealized appreciation in value of
investments ................................... 2,379
--------
Net assets applicable to outstanding units
of capital ................................... $136,448
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.43
Class Y .......................................... $5.43
Capital shares outstanding
Class A .......................................... 24,824
Class Y .......................................... 322
Capital shares authorized .......................... 3,000,000
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $9,185
------
Expenses (Note 2):
Investment management fee ....................... 531
Service fee - Class A ........................... 317
Transfer agency and dividend disbursing - Class A 275
Accounting services fee ......................... 40
Distribution fee - Class A ...................... 17
Custodian fees .................................. 11
Audit fees ...................................... 9
Legal fees ...................................... 3
Shareholder servicing - Class Y ................. 3
Other ........................................... 87
------
Total expenses ................................ 1,293
------
Net investment income ........................ 7,892
------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on investments .................. 1,192
Unrealized depreciation in value of investments
during the period ............................... (2,312)
------
Net loss on investments ....................... (1,120)
------
Net increase in net assets resulting from
operations ................................. $6,772
======
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
March 31,
-------------------------
1999 1998
------------ ------------
Increase in Net Assets
Operations:
Net investment income ............ $ 7,892 $ 7,980
Realized net gain
on investments ................. 1,192 1,267
Unrealized appreciation
(depreciation) ................. (2,312) 5,459
-------- --------
Net increase in net assets
resulting from operations ..... 6,772 14,706
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (7,788) (7,909)
Class Y .......................... (104) (71)
-------- --------
(7,892) (7,980)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (6,970,185 and 2,736,771
shares, respectively) ......... 38,397 14,751
Class Y (350,988 and 357,555
shares, respectively) ......... 1,930 1,951
Proceeds from reinvestment of
dividends:
Class A (1,302,550 and 1,331,822
shares, respectively) ......... 7,154 7,147
Class Y (18,673 and 12,802
shares, respectively) ......... 102 69
Payments for shares redeemed:
Class A (7,386,747 and 4,991,427
shares, respectively) ......... (40,510) (26,766)
Class Y (520,971 and 24,157
shares, respectively) ......... (2,854) (130)
-------- --------
Net increase (decrease) in net
assets resulting from capital
share transactions ............ 4,219 (2,978)
-------- --------
Total increase ................ 3,099 3,748
Net Assets
Beginning of period ............... 133,349 129,601
-------- --------
End of period ..................... $136,448 $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 fiscal year ended March 31,
-----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.46 $5.19 $5.32 $5.13 $5.23
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.32 0.33 0.33 0.34 0.32
Net realized and
unrealized gain
(loss) on
investments ..... (0.03) 0.27 (0.13) 0.19 (0.10)
----- ----- ----- ----- -----
Total from investment
operations ....... 0.29 0.60 0.20 0.53 0.22
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.32) (0.33) (0.33) (0.34) (0.32)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.43 $5.46 $5.19 $5.32 $5.13
===== ===== ===== ===== =====
Total return* ...... 5.44% 11.84% 3.75% 10.48% 4.49%
Net assets, end
of period (in
millions) ........ $134 $131 $129 $146 $150
Ratio of expenses
to average net
assets ........... 0.96% 0.89% 0.91% 0.83% 0.82%
Ratio of net investment
income to average
net assets ....... 5.82% 6.14% 6.17% 6.34% 6.30%
Portfolio turnover
rate ............. 37.06% 35.18% 34.18% 63.05% 41.57%
*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
period
For the fiscal year from
ended March 31, 9/27/95*
---------------------- through
1999 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 .......... 0.33 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments ..... (0.03) 0.27 (0.13) (0.01)
----- ----- ----- -----
Total from investment
operations ....... 0.30 0.61 0.21 0.16
----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.33) (0.34) (0.34) (0.17)
----- ----- ----- -----
Net asset value,
end of period .... $5.43 $5.46 $5.19 $5.32
===== ===== ===== =====
Total return ....... 5.71% 12.02% 3.99% 3.04%
Net assets, end of
period (in
millions) ........ $2 $2 $1 $1
Ratio of expenses
to average net
assets ........... 0.68% 0.66% 0.67% 0.60%**
Ratio of net
investment income
to average net
assets ........... 6.10% 6.37% 6.41% 6.40%**
Portfolio
turnover rate .... 37.06% 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, 1999
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.
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 $21.5
billion of combined net assets at March 31, 1999) 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
$502,515, out of which W&R paid sales commissions of $295,138 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 $4,980, 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 $53,675,020 while
proceeds from maturities and sales aggregated $47,743,014. Purchases of short-
term securities aggregated $1,892,147,219 while proceeds from maturities and
sales aggregated $1,892,868,000.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $133,647,831, resulting in net unrealized appreciation of $2,378,792,
of which $3,160,362 related to appreciated securities and $781,570 to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $1,096,236 during the year ended March 31, 1999. This capital gain net
income was entirely offset by utilization of capital loss carryovers. Remaining
capital loss carryovers aggregated $1,548,923 at March 31, 1999, and are
available to offset future realized capital gain net income for Federal income
tax purposes but will expire if not utilized as follows: $515,470 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 -- 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 March 31, 1999, and the related statements
of operations for the fiscal year then ended, the statement of changes in
net assets for each of the two fiscal years in the period then ended, and
the financial highlights for each of the five fiscal years in the period
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 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 as of March 31, 1999, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of United Government Securities Fund, Inc. as of March 31, 1999,
the results of its operations for the fiscal year then ended, the changes
in its net assets for each of the two fiscal years in the period then
ended, and the financial highlights for each of the five fiscal years in
the period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
<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 usually 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
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 K. 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
Helge K. Lee, Vice President and Secretary
Lower sales charges are available by combining the net asset value ("NAV") of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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>
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(3-99)
printed on recycled paper
