United
Government
Securities
Fund, Inc.
ANNUAL
REPORT
-------------------------------------------
March 31, 2000
<PAGE>
MANAGER'S LETTER
-----------------------------------------------------------------
MARCH 31, 2000
Dear Shareholder:
This report relates to the operation of United Government Securities Fund
for the fiscal year ended March 31, 2000. The following discussion, graphs
and tables provide you with information regarding the Fund's performance
during that period.
In early 1999, interest rates rose as the world economies recovered from
the crisis of 1998. During this period of economic improvement, the Federal
Reserve raised short-term interest rates five times. Due to projected
budget surpluses, the Treasury began to reduce the amount of U.S.
government debt outstanding. This caused an inversion of the yield curve,
where bonds with short-term maturities have higher yields than bonds with
longer-term maturities. Finally, this past winter, an undersecretary of
the Treasury reiterated the Treasury's long-standing position that it does
not explicitly guarantee the debt of U.S. agencies. This reduced the
attractiveness of various agency debt instruments.
During the course of the last fiscal year, the Fund maintained a high
percentage of shorter-maturity mortgage-backed securities due to the rise
in interest rates experienced in the first half of the year and then
purchased longer-term Treasury securities during the past quarter as U.S.
Treasury rates declined. The Fund's basic strategy remains the same. We
attempt to seek current yield while remaining flexible enough to withstand
the volatility inherent in the present day government securities markets.
The strategies and techniques we applied resulted in the Fund outperforming
the universe of funds with similar investment objectives (the Lipper
General U.S. Government Fund Universe Average) and 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). Both indexes are charted on the following page.
We expect to see a continuation of the recent market volatility for the
immediate future. Factors that may affect the Fund's performance this year
include the presidential election, the Fed's attempt to slow the economy by
raising interest rates, the high trade deficit and the implications of that
deficit for the value of the U.S. dollar abroad. If the equity markets
slump, we would expect some of the wealth currently tied up in those
markets to return to the relative safety of government securities and
offset the negative aspects of the factors discussed above. We do not
expect to deviate much from our emphasis on high-quality government debt,
including U.S. Treasury bonds and notes, and government-backed mortgage
securities.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
James C. Cusser
Manager, United Government Securities Fund, Inc.
<PAGE>
<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
-------------------------- ------------
03/31/90 Purchase 9,575 10,000 10,000
03/31/91 10,598 11,290 11,120
03/31/92 11,786 12,570 12,230
03/31/93 13,627 14,208 13,748
03/31/94 13,840 14,549 13,971
03/31/95 14,462 15,267 14,383
03/31/96 15,979 16,875 15,714
03/31/97 16,578 17,701 16,251
03/31/98 18,542 19,778 18,110
03/31/99 19,550 21,077 19,069
03/31/00 19,905 21,565 19,222
===== United Government Securities Fund, Inc., Class A Shares* - $19,905
+++++ Salomon Brothers Treasury/Government Sponsored/Mortgage Bond Index -
$21,565
----- Lipper General U.S. Govt. Fund Universe Average - $19,222
*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.
Average Annual Total Return+
Class A Class B Class C Class Y
----------------------------------------------
Year Ended
3/31/00 -2.51% N/A N/A 2.20%
5 Years Ended
3/31/00 5.68% N/A N/A N/A
10 Years Ended
3/31/00 7.13% N/A N/A N/A
Since inception of
Class** through
3/31/00 N/A -2.09% 1.08% 5.93%
+Performance data quoted represents past performance and is based on
deduction of the maximum applicable sales load for each of the periods.
Class A shares carry a maximum front-end sales load of 5.75%. Class B
and Class C shares carry maximum contingent deferred sales charges of 5%
and 1%, respectively. Total returns reflect share price appreciation,
including reinvestment of all income and capital gains distributions.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original
cost.
++10/4/99 for Class B shares, 10/8/99 for Class C shares and 9/27/95 for
Class Y shares (the date on which shares were first acquired by
shareholders).
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: To seek as high a current
Securities income 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 exclusively in debt
securities issued or guaranteed by
the U.S. Government or its agencies
or instrumentalities. The Fund
invests in a diversified portfolio
of U.S. Government securities,
including Treasury issues and
mortgage-backed securities. The
Fund has no limitations on the
range of maturities of the debt
securities in which it may invest.
FOUNDED: 1982
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 2000
----------------------------------------
DIVIDENDS PAID $0.30
=====
NET ASSET VALUE ON
3/31/00 $5.22
3/31/99 5.43
------
CHANGE PER SHARE ($0.21)
======
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 3-31-00 -2.51% 1.82%
5-year period ended 3-31-00 5.68% 6.60%
10-year period ended 3-31-00 7.13% 7.59%
*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, 2000, United Government Securities Fund, Inc. had net assets
totaling $119,791,607 invested in a diversified portfolio.
As a shareholder of United Government Securities Fund, Inc., for every $100
you had invested on March 31, 2000, your Fund owned:
$38.47 Federal National Mortgage Association Bonds
23.65 Miscellaneous U.S. Government Backed Bonds
15.69 Federal Home Loan Mortgage Corporation Bonds
14.81 United States Treasury
6.94 Government National Mortgage Association Bonds
0.44 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
11.0%, 1-1-03 ......................... $ 17 $ 18,100
7.5%, 9-1-07 .......................... 51 50,978
6.5%, 9-25-18 ......................... 2,500 2,405,450
7.0%, 1-15-19 ......................... 4,500 4,421,250
6.25%, 1-15-21 ........................ 3,500 3,380,755
8.0%, 2-1-23 .......................... 1,126 1,130,151
6.5%, 11-1-24 ......................... 1,816 1,719,518
7.0%, 12-1-25 ......................... 5,899 5,673,717
Total ................................. 18,799,919
Federal National Mortgage Association:
8.5%, 8-1-01 .......................... 2,732 2,738,319
7.0%, 10-25-03 ........................ 4,548 4,514,763
7.135%, 6-1-07 ........................ 5,560 5,440,305
7.15%, 6-1-07 ......................... 2,256 2,208,721
8.4%, 2-25-09 ......................... 3,458 3,495,994
6.09%, 4-1-09 ......................... 3,966 3,631,132
6.147%, 4-1-09 ........................ 3,022 2,777,093
0.0%, 2-12-18 ......................... 2,500 773,375
7.0%, 9-25-20 ......................... 500 492,500
11.0%, 10-1-20 ........................ 1,829 2,016,709
6.5%, 8-25-21 ......................... 7,000 6,772,500
7.0%, 12-1-23 ......................... 5,342 5,134,836
7.42%, 10-1-25 ........................ 6,018 6,083,033
Total ................................. 46,079,280
Government National Mortgage Association:
7.0%, 7-15-23 ......................... 2,595 2,520,635
7.0%, 8-20-27 ......................... 695 669,920
9.75%, 11-15-28 ....................... 2,902 3,160,599
7.75%, 10-15-31 ....................... 1,959 1,965,766
Total ................................. 8,316,920
United States Treasury:
5.5%, 3-31-03 ......................... 2,000 1,949,060
7.5%, 2-15-05 ......................... 4,000 4,182,480
6.5%, 8-15-05 ......................... 2,500 2,514,850
6.5%, 10-15-06 ........................ 500 504,220
6.125%, 11-15-27 ...................... 8,500 8,583,640
Total ................................. 17,734,250
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED GOVERNMENT SECURITIES FUND, INC.
MARCH 31, 2000
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%, 1-25-12 ..................... $ 6,582 $ 6,371,209
Tennessee Valley Authority,
5.88%, 4-1-36 ....................... 7,750 7,451,237
United States Department of Veterans Affairs,
Guaranteed REMIC Pass-Through Certificates,
Vendee Mortgage Trust:
1997-2 Class C,
7.5%, 8-15-17 ....................... 3,500 3,502,170
1998-1 Class 2-B,
7.0%, 6-15-19 ....................... 3,000 2,952,180
1998-3 Class B,
6.5%, 5-15-20 ....................... 1,500 1,432,500
1999-1 Class 2-B,
6.5%, 8-15-20 ....................... 3,000 2,899,680
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%, 6-1-15 ........................ 3,831 3,720,228
Total ............................... 28,329,204
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 99.56% $119,259,573
(Cost: $121,457,551)
SHORT-TERM SECURITIES - 0.35%
J.P. Morgan Securities Inc., 5.97% Repurchase
Agreement dated 3-31-00, to be
repurchased at $423,211 on 4-3-00* .... 423 $ 423,000
(Cost: $423,000)
TOTAL INVESTMENT SECURITIES - 99.91% $119,682,573
(Cost: $121,880,551)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.09% 109,034
NET ASSETS - 100.00% $119,791,607
Notes to Schedule of Investments
*Collateralized by $349,000 U.S. Treasury Bonds, 8.125% due 8-15-21; market
value and accrued interest aggregate $432,506.
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, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $119,683
Cash ............................................ 33
Receivables:
Interest ........................................ 1,210
Fund shares sold ................................ 41
Investment securities sold ...................... 1
Prepaid insurance premium ........................ 11
--------
Total assets .................................. 120,979
--------
Liabilities
Payable to Fund shareholders ..................... 1,040
Dividends payable ................................ 72
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 34
Accrued service fee (Note 2) ..................... 22
Accrued accounting services fee (Note 2) ......... 3
Accrued management fee (Note 2) .................. 2
Accrued distribution fee (Note 2) ................ 3
Other ............................................ 11
--------
Total liabilities ............................. 1,187
--------
Total net assets.............................. $119,792
========
Net Assets
$0.01 par value capital stock
Capital stock ................................... $ 229
Additional paid-in capital ...................... 124,044
Accumulated undistributed loss:
Accumulated undistributed net realized loss on
investment transactions ....................... (2,283)
Net unrealized depreciation in value of
investments ................................... (2,198)
--------
Net assets applicable to outstanding units
of capital ................................... $119,792
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $5.22
Class B .......................................... $5.22
Class C .......................................... $5.22
Class Y .......................................... $5.22
Capital shares outstanding
Class A .......................................... 22,373
Class B .......................................... 115
Class C .......................................... 53
Class Y .......................................... 406
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, 2000
(In Thousands)
Investment Income
Interest and amortization (Note 1B) .............. $9,004
------
Expenses (Note 2):
Investment management fee ....................... 618
Transfer agency and dividend disbursing:
Class A ........................................ 336
Class B ........................................ 1
Class C ........................................ ---*
Service fee:
Class A ........................................ 301
Class B ........................................ ---*
Class C ........................................ ---*
Accounting services fee ......................... 40
Distribution fee:
Class A ........................................ 25
Class B ........................................ 2
Class C ........................................ ---*
Audit fees ...................................... 10
Custodian fees .................................. 9
Legal fees ...................................... 7
Shareholder servicing - Class Y ................. 3
Other ........................................... 112
------
Total expenses ................................ 1,464
------
Net investment income ........................ 7,540
------
Realized and Unrealized Loss on
Investments (Notes 1 and 3)
Realized net loss on investments .................. (739)
Unrealized depreciation in value of investments
during the period ............................... (4,577)
------
Net loss on investments ....................... (5,316)
------
Net increase in net assets resulting from
operations ................................. $2,224
======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year ended
March 31,
-------------------------
2000 1999
------------ ------------
Operations:
Net investment income ............ $ 7,540 $ 7,892
Realized net gain
(loss) on investments ......... (739) 1,192
Unrealized depreciation ......... (4,577) (2,312)
-------- --------
Net increase in net assets
resulting from operations ..... 2,224 6,772
-------- --------
Dividends to shareholders from
net investment income (Note 1D):*
Class A .......................... (7,397) (7,788)
Class B .......................... (10) ---
Class C .......................... (3) ---
Class Y .......................... (130) (104)
-------- --------
(7,540) (7,892)
-------- --------
Capital share transactions
(Note 5) ......................... (11,340) 4,219
-------- --------
Total increase (decrease) ..... (16,656) 3,099
Net Assets
Beginning of period ............... 136,448 133,349
-------- --------
End of period ..................... $119,792 $136,448
======== ========
Undistributed net investment income $--- $---
==== ====
*See "Financial Highlights" on pages 12 - 15.
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,
-----------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $5.43 $5.46 $5.19 $5.32 $5.13
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.31 0.32 0.33 0.33 0.34
Net realized and
unrealized gain
(loss) on
investments ..... (0.21) (0.03) 0.27 (0.13) 0.19
----- ----- ----- ----- -----
Total from investment
operations ....... 0.10 0.29 0.60 0.20 0.53
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.31) (0.32) (0.33) (0.33) (0.34)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== =====
Total return* ...... 1.82% 5.44% 11.84% 3.75% 10.48%
Net assets, end
of period (in
millions) ........ $117 $134 $131 $129 $146
Ratio of expenses
to average net
assets ........... 1.12% 0.96% 0.89% 0.91% 0.83%
Ratio of net investment
income to average
net assets ....... 5.77% 5.82% 6.14% 6.17% 6.34%
Portfolio turnover
rate ............. 26.78% 37.06% 35.18% 34.18% 63.05%
*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 B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/4/99*
through
3/31/00
-------
Net asset value,
beginning of period $5.25
----
Income from investment
operations:
Net investment
income .......... 0.13
Net realized and
unrealized loss
on investments .. (0.03)
----
Total from investment
operations ....... 0.12
----
Less dividends declared
from net investment
income ........... (0.13)
----
Net asset value,
end of period .... $5.22
====
Total return ....... 1.88%
Net assets, end of
period (000
omitted) ......... $599
Ratio of expenses
to average
net assets ....... 1.85%**
Ratio of net investment
income to average
net assets ....... 5.19%**
Portfolio turnover
rate ............. 26.78%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/8/99*
through
3/31/00
-------
Net asset value,
beginning of period $5.23
----
Income from investment
operations:
Net investment
income .......... 0.12
Net realized and
unrealized loss
on investments .. (0.01)
----
Total from investment
operations ....... 0.11
----
Less dividends declared
from net investment
income ........... (0.12)
----
Net asset value,
end of period .... $5.22
====
Total return ....... 2.08%
Net assets, end of
period (000
omitted) ......... $269
Ratio of expenses
to average net
assets ........... 2.07%**
Ratio of net investment
income to average
net assets ....... 4.98%**
Portfolio turnover
rate ............. 26.78%**
*Commencement of operations.
**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
period
For the fiscal year from
ended March 31, 9/27/95*
--------------------------- through
2000 1999 1998 1997 3/31/96
----- ----- ----- ----- -------
Net asset value,
beginning of period $5.43 $5.46 $5.19 $5.32 $5.33
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.33 0.33 0.34 0.34 0.17
Net realized and
unrealized gain
(loss) on
investments ..... (0.21) (0.03) 0.27 (0.13) (0.01)
----- ----- ----- ----- -----
Total from investment
operations ....... 0.12 0.30 0.61 0.21 0.16
----- ----- ----- ----- -----
Less dividends declared
from net investment
income ........... (0.33) (0.33) (0.34) (0.34) (0.17)
----- ----- ----- ----- -----
Net asset value,
end of period .... $5.22 $5.43 $5.46 $5.19 $5.32
===== ===== ===== ===== =====
Total return ....... 2.20% 5.71% 12.02% 3.99% 3.04%
Net assets, end of
period (in
millions) ........ $2 $2 $2 $1 $1
Ratio of expenses
to average net
assets ........... 0.75% 0.68% 0.66% 0.67% 0.60%+
Ratio of net
investment income
to average net
assets ........... 6.15% 6.10% 6.37% 6.41% 6.40%+
Portfolio
turnover rate .... 26.78% 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, 2000
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 seek as high
a current income as is consistent with safety of principal. 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 accounting principles generally accepted in the United
States of America.
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 accounting principles generally accepted in the United
States of America. 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 accounting
principles generally accepted in the United States of America 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 is payable by the Fund at the annual rates of: 0.50% of net assets up
to $500 million, 0.45% of net assets over $500 million and up to $1
billion, 0.40% of net assets over $1 billion and up to $1.5 billion, and
0.35% of net assets over $1.5 billion. The Fund accrues and pays the 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, Class B and Class C shares, the Fund 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, plus $0.30 for each account on which a
dividend or distribution of cash or shares had a record date in that month.
With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of 0.15% 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 $114,701. With respect to Class A, Class B and Class C shares, W&R paid
sales commissions of $115,765 and all expenses in connection with the sale
of Fund shares, except for registration fees and related expenses.
A contingent deferred sales charge ("CDSC") may be assessed against
a shareholder's redemption amount of Class B and Class C shares and is paid
to W&R. The purpose of the deferred sales charge is to compensate W&R for
the costs incurred by W&R in connection with the sale of Fund shares.
With respect to Class B shares, the amount of the CDSC will be the
following percent of the total amount invested during a calendar year to
acquire the shares or the value of the shares redeemed, whichever is less.
Redemption at any time during the first calendar year of investment, 5%;
the second calendar year, 4%; the third calendar year, 3%; the fourth
calendar year, 3%; the fifth calendar year, 2%; the sixth calendar year, 1%
and thereafter, 0%.
If Class C shares are sold within 12 months of buying these shares, a
1% CDSC will be imposed.
The deferred sales charge will not be imposed on shares representing
payment of dividends or distributions or on amounts which represent an
increase in the value of the shareholder's account resulting from capital
appreciation above the amount paid for shares purchased during the deferred
sales charge period. During the period ended March 31, 2000, W&R received
$627 in deferred sales charges from Class C shares. No CDSC fees were
received from Class B shares.
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 0.25% of the Fund's average annual net assets. The
fee is to be paid to reimburse W&R for amounts it expends in connection
with the distribution of the Class A shares and/or provision of personal
services to Fund shareholders and/or maintenance of shareholder accounts.
Under the Distribution and Service Plan adopted by the Fund for Class
B and Class C shares, respectively, the Fund may pay W&R, on an annual
basis, a service fee of up to 0.25% of the average daily net assets of the
class to compensate W&R for providing services to shareholders of that
class and/or maintaining shareholder accounts for that class and a
distribution fee of up to 0.75% of the average daily net assets of the
class to compensate W&R for distributing the shares of that class. The
Class B Plan and the Class C Plan each permit W&R to receive compensation,
through the distribution and service fee, respectively, for its
distribution activities for that class, which are similar to the
distribution activities described with respect to the Class A Plan, and for
its activities in providing personal services to shareholders of that class
and/or maintaining shareholder accounts of that class, which are similar to
the corresponding activities for which is it entitled to reimbursement
under the Class A Plan.
The Fund paid Directors' fees of $4,776, 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 $33,655,839 while
proceeds from maturities and sales aggregated $34,364,228. Purchases of
short-term securities aggregated $1,212,029,000 while proceeds from
maturities and sales aggregated $1,222,301,000.
For Federal income tax purposes, cost of investments owned at March
31, 2000 was $122,151,091, resulting in net unrealized depreciation of
$2,468,518, of which $811,592 related to appreciated securities and
$3,280,110 to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$467,822 during the year ended March 31, 2000. Capital loss carryovers
aggregated $2,016,745 at March 31, 2000, 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; $690,258 at March 31, 2005; and $467,822 at March 31, 2008.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class
B, Class C and Class Y, each of which have equal rights as to assets and
voting privileges. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan
and are subject to a separate transfer agency and dividend disbursement
services fee structure. A comprehensive discussion of the terms under
which shares of each 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 their relative net assets as of the beginning of each day adjusted for
the prior day's capital share activity.
Transactions in capital stock are summarized below. Amounts are in
thousands.
For the fiscal
year ended March 31,
--------------------------
2000 1999
------------ ------------
Shares issued from sale
of shares:
Class A ............ 4,386 6,970
Class B ............. 179 ---
Class C ............. 67 ---
Class Y ............ 57 351
Shares issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 1,282 1,303
Class B ............. 2 ---
Class C ............. 1 ---
Class Y ............ 229 19
Shares redeemed:
Class A ............ (8,120) (7,387)
Class B ............. (66) ---
Class C ............. (15) ---
Class Y ............ (202) (521)
------ -----
Increase(decrease) in
outstanding capital
shares .............. (2,200) 735
====== =====
Value issued from sale
of shares:
Class A ............ $23,155 $38,397
Class B ............. 929 ---
Class C ............. 349 ---
Class Y ............ 1,387 1,930
Value issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 6,736 7,154
Class B ............. 10 ---
Class C ............. 3 ---
Class Y ............ 115 102
Value redeemed:
Class A ............ (42,553) (40,510)
Class B ............. (344) ---
Class C ............. (78) ---
Class Y ............ (1,049) (2,854)
-------- -------
Increase(decrease) in outstanding
capital ............ ($11,340) $ 4,219
======== =======
<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, 2000, and the related statement of
operations for the fiscal year then ended, the statements 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 auditing standards generally
accepted in the United States of America. 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, 2000,
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, 2000, 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 accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
May 5, 2000
<PAGE>
Shareholder Meeting Results
A special meeting of United Government Securities Fund, Inc. was held on
June 22, 1999. 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 Withhold Non-Votes*
J. Concannon 13,152,809 431,210 0
J. Dillingham 13,152,728 431,291 0
D. Gardner 13,119,137 464,882 0
L. Graves 13,083,948 500,071 0
J. Harroz Jr. 13,121,539 462,480 0
J. Hayes 13,078,915 505,104 0
R. Hechler 13,109,506 474,513 0
H. Herrmann 13,090,406 493,613 0
G. Johnson 13,056,484 527,535 0
W. Morgan 13,085,787 498,232 0
R. Reimer 13,113,356 470,663 0
F. Ross 13,125,419 458,600 0
E. Schwartz 13,060,888 523,131 0
K. Tucker 13,125,892 458,127 0
F. Vogel 13,152,809 431,210 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 Abstain Non-Votes*
12,879,241 109,553 595,225 0
Item 3. To approve or disapprove the amendment to the Fund's
investment management agreement with Waddell & Reed Investment
Management Company:
Broker
For Against Abstain Non-Votes*
11,987,091 780,555 810,575 5,798
Item 4. To approve or disapprove the amendment of the Fund's policy
regarding securities lending:
Broker
For Against Abstain Non-Votes*
11,922,661 576,209 1,079,351 5,798
Item 5. To approve or disapprove the Fund's Articles of
Incorporation to change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
11,936,234 579,480 1,068,305 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>
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, San Mateo, 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
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, Vice President
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 Accumulative Fund
United Asset Strategy Fund, Inc.
United Bond Fund
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Income Fund
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Science and Technology Fund
United Small Cap Fund, Inc.
United Tax-Managed Equity Fund, Inc.
United Vanguard 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
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1011A(3-00)
printed on recycled paper
