UNITED
GOLD &
GOVERNMENT
FUND, INC.
ANNUAL
REPORT
-------------------------------------------
For the fiscal year ended December 31, 1996
<PAGE>
MANAGER'S LETTER
DECEMBER 31, 1996
-----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the United Gold & Government
Fund for the fiscal year ended December 31, 1996. The following
discussion, graphs and tables provide you with information regarding the
Fund's performance during that period.
Strong equity markets, low global inflation and an abundant supply of
gold relative to demand in 1996 contributed to low investor interest in
gold and in gold-related securities. While demand for gold has exceeded
the supply from mine production for several years, the demand has been met
by central bank sales and a financing technique used by gold producers that
allows them to sell future gold production into the current market. The
result of these combined forces is that the price of gold has traded in a
generally narrow range for the past three years.
In early 1996, at a time when seasonal demand for gold was high, the
central banks briefly curtailed the ability of gold producers to sell out
of future production. We responded by reducing the Fund's fixed income
holdings and increasing our exposure to gold bullion and to securities of
gold producers that do not rely on selling from future production. The
price of gold peaked in February and declined throughout the remainder of
1996. Gold-related securities, however, generally continued to perform
well until early June of 1996. The performance of the Fund was aided by
the reduction in emphasis on fixed income securities, but negatively
impacted by excess exposure to gold relative to gold-related securities.
The strategies and techniques we applied resulted in mixed performance
compared to the indexes charted on the following page. Those indexes
reflect the performance of securities that generally represent the stock
market (the S&P 500 Index), the U.S. Government securities market (the
Lehman Brothers Government Bond Index) and the universe of funds with
similar investment objectives (the Lipper Gold Oriented Fund Universe
Average). The equity market generally experienced superior performance
relative to the bond and gold markets during 1996, causing the Fund to
underperform the S&P 500 Index. The Fund outperformed the Lehman Brothers
index primarily due to the Fund's gold-related investments.
As 1997 begins, it will be difficult for gold and gold-related
securities to represent attractive investments as long as low inflation,
high investor confidence in the viability of paper assets and a high supply
of gold relative to demand persist. We have attempted to position the Fund
to take advantage of the anticipated investing environment.
Thank you very much for your continued support and confidence.
Respectfully,
Michael L. Avery
Manager, United Gold & Government Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United Gold & Government Fund, Inc.,
The S&P 500 Index, The Lehman Brothers Government Bond Index,
and The Lipper Gold Oriented Fund Universe Average
Lipper
Lehman Gold
United Brothers Oriented
Gold & S&P Government Fund
Government 500 Bond Universe
Fund, Inc. Index Index Average
--------- --------- --------- ---------
12/31/86 Purchase 9,425 10,000 10,000
10,000
12/31/87 12,286 10,525 10,220 13,669
12/31/88 11,805 12,273 10,939 11,356
12/31/89 13,980 16,163 12,497 13,861
12/31/90 10,962 15,661 13,588 10,799
12/31/91 11,123 20,432 15,670 10,299
12/31/92 9,657 21,990 16,802 8,733
12/31/93 16,979 24,205 18,593 15,573
12/31/94 14,033 24,525 17,966 13,623
12/31/95 15,408 33,741 21,259 13,972
12/31/96 16,075 41,489 21,849 14,978
===== United Gold & Government Fund, Inc.* -- $16,075
----- S&P 500 Index -- $41,489
+++++ Lehman Bros. Gov't Bond Index -- $21,849
_____ Lipper Gold Oriented Fund Universe Average -- $14,978
*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 and
assumes reinvestment of dividends and distributions.
Average Annual Total Return +
Class A++ Class Y
-----------------------------
Year Ended
12/31/96 -1.67% N/A
5 Years Ended
12/31/96 6.37% N/A
10 Years Ended
12/31/96 4.86% N/A
Aggregate Total
Return for Life
of Class Y +++ N/A -1.88%
+ 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 5.75% 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.
+++ 2/27/96 (the date on which Fund Class Y shares were first acquired by
shareholders) through 12/31/96.
<PAGE>
SHAREHOLDER SUMMARY
----------------------------------------------------------------------
UNITED GOLD & GOVERNMENT FUND, INC.
PORTFOLIO STRATEGY:
Inflationary strategies: OBJECTIVE: High total return (income
plus appreciation of
Up to 100% in minerals-related share value).
securities.
Minimum of 25% so invested. STRATEGY: Invests in precious
Up to 100% in foreign securities. metals and minerals
-related securities
Disinflationary strategies: during periods of
actual or expected
Up to 100% in U.S. Government inflation or when the
Securities. investment environment
Maximum of 25% in minerals- appears favorable;
related securities. invests in U.S.
Government Securities during
periods of disinflation or low
inflation. (May purchase
securities subject to repurchase
agreements. May invest in certain
options and futures.)
FOUNDED: 1985
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended December 31, 1996
-------------------------------------------
DIVIDENDS PAID $0.06
=====
NET ASSET VALUE ON
12/31/96 $9.07
12/31/95 8.75
-----
CHANGE PER SHARE $0.32
=====
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 12-31-96 -1.67% 4.33%
5-year period ended 12-31-96 6.37% 7.64%
10-year period ended 12-31-96 4.86% 5.48%
*Performance data quoted represents past performance and is based on
deduction of 5.75% 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 December 31, 1996, United Gold & Government Fund, Inc. had net assets
totaling $31,326,843 invested in a diversified portfolio of:
35.18% Common Stocks
31.71% United States Government Securities
23.78% Cash and Cash Equivalents
4.68% Preferred Stocks
4.65% Bullion
As a shareholder of United Gold & Government Fund, Inc. for every $100 you
had invested on December 31, 1996, your Fund owned:
$31.71 U.S. Government Securities
26.80 Foreign Mining Stocks
23.78 Cash and Cash Equivalents
6.79 U.S. Mining Stocks
4.68 Preferred Stocks
4.65 Bullion
1.59 Miscellaneous Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1996
Troy
Ounces Value
BULLION
Gold* .................................. 1,799 $ 664,158
Platinum* .............................. 2,145 792,299
TOTAL BULLION - 4.65% $ 1,456,457
(Cost: $1,548,154)
Shares
COMMON STOCKS
Gold
Australia - 6.68%
Acacia Resources Limited* .............. 200,000 389,501
Newcrest Mining Limited ................ 100,000 397,450
Plutonic Resources Limited ............. 215,000 999,785
Ranger Minerals NL* .................... 100,000 306,037
Total ................................. 2,092,773
Canada - 20.12%
Armada Gold Corporation, Class A* ...... 100,000 91,984
Dayton Mining Corporation* ............. 125,000 830,413
Eldorado Gold Corporation* ............. 53,700 360,666
Euro-Nevada Mining Corporation Limited . 27,200 809,169
Franco-Nevada Mining Corporation Limited 19,600 897,868
Goldcorp Inc., Class A* ................ 30,000 257,337
Greenstone Resources Ltd.* ............. 65,000 756,862
Miramar Mining Corporation* ............ 38,800 169,952
Pangea Goldfields Inc.* ................ 70,700 330,326
Rea Gold Corporation* .................. 115,000 143,561
Repadre Capital Corporation* ........... 90,000 525,624
TVX Gold Inc.* ......................... 115,000 891,250
Triton Mining Corporation* ............. 75,000 239,542
Total ................................. 6,304,554
United States - 6.79%
Newmont Gold Company ................... 20,500 896,875
Santa Fe Pacific Gold Corporation ...... 80,000 1,230,000
Total ................................. 2,126,875
Total Gold - 33.59% 10,524,202
Miscellaneous
Electric, Gas and Sanitary Services - 0.82%
Sonat Inc. ............................ 5,000 257,500
Oil and Gas Extraction - 0.77%
Noble Affiliates, Inc. ................. 5,000 239,375
Total Miscellaneous - 1.59% 496,875
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1996
Shares Value
TOTAL COMMON STOCKS - 35.18%.............. $11,021,077
(Cost: $8,779,662)
PREFERRED STOCKS - 4.68%
Gold
United States
Amax Gold Inc., Series B, Convertible ... 10,000 526,250
Battle Mountain Gold Company, Convertible 10,000 500,000
Hecla Mining Company, Series B,
Convertible ........................... 10,000 440,000
Total ................................. $ 1,466,250
(Cost: $1,493,237)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.25%, 5-31-2000 ...................... $1,000 1,004,060
5.875%, 6-30-2000 ..................... 2,000 1,985,000
7.25%, 8-15-2004 ...................... 2,000 2,105,000
7.875%, 11-15-2004 .................... 2,500 2,728,125
7.25%, 5-15-2016 ...................... 2,000 2,111,880
TOTAL UNITED STATES GOVERNMENT SECURITIES - 31.71% $ 9,934,065
(Cost: $9,794,944)
TOTAL SHORT-TERM SECURITIES - 23.80%
Repurchase Agreements
J. P. Morgan Securities, 5.5%
Repurchase Agreement dated
12-31-96, to be repurchased
at $7,457,278 on 1-2-97** ............. 7,455 $ 7,455,000
(Cost: $7,455,000)
TOTAL INVESTMENTS - 100.02% $31,332,849
(Cost: $29,070,997)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.02%) (6,006)
NET ASSETS - 100.00% $31,326,843
Notes To Schedule Of Investments
*Non-income producing.
**Collateralized by $5,833,000 U.S. Treasury Notes, 9.25% due 2-15-2006,
market value and accrued interest aggregate $7,615,913.
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 GOLD & GOVERNMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
Assets
Investments -- at value (Notes 1 and 3):
Bullion (cost -- $1,548,154) .................... $ 1,456,457
Securities (cost -- $27,522,843) ................ 29,876,392
-----------
31,332,849
Cash ............................................. 4,094
Receivables:
Interest and dividends .......................... 114,864
Fund shares sold ................................ 8,582
Prepaid insurance premium ........................ 9,757
-----------
Total assets .................................. 31,470,146
-----------
Liabilities
Payable for Fund shares redeemed ................. 89,669
Accrued service fee (Note 2) ..................... 22,500
Accrued transfer agency and
dividend disbursing (Note 2) .................... 15,105
Accrued accounting services fee (Note 2) ......... 1,667
Other ............................................ 14,362
-----------
Total liabilities ............................. 143,303
-----------
Total net assets ............................. $31,326,843
===========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 3,455,618
Additional paid-in capital ...................... 38,110,332
Accumulated undistributed income (loss):
Accumulated undistributed net investment income . 4,553
Accumulated net realized loss on investment
transactions .................................. (12,505,512)
Net unrealized appreciation in value of
investments at end of period .................. 2,261,852
-----------
Net assets applicable to outstanding units
of capital.................................... $31,326,843
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.07
Class Y .......................................... $9.07
Capital shares outstanding
Class A .......................................... 3,398,707
Class Y .......................................... 56,911
Capital shares authorized .......................... 100,000,000
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
Investment Income
Income (Note 1B):
Interest ........................................ $ 726,731
Dividends ....................................... 116,072
----------
Total income .................................. 842,803
----------
Expenses (Note 2):
Investment management fee ....................... 238,896
Transfer agency and dividend disbursing - Class A 172,956
Service fee - Class A ........................... 83,576
Registration fees ............................... 42,506
Custodian fees .................................. 23,134
Accounting services fee ......................... 20,000
Audit fees ...................................... 11,966
Shareholder servicing - Class Y ................. 514
Other ........................................... 26,438
----------
Total expenses ................................ 619,986
----------
Net investment income ........................ 222,817
----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net loss on bullion ..................... (237,455)
Realized net gain on securities .................. 1,564,022
Realized net loss on foreign
currency transactions ........................... (7,070)
----------
Realized net gain on investments ................ 1,319,497
----------
Unrealized depreciation in value of bullion
during the period ............................... (63,459)
Unrealized depreciation in value of securities
during the period ............................... (50,640)
----------
Unrealized depreciation in value of investments
during the period ............................. (114,099)
----------
Net gain on investments ....................... 1,205,398
----------
Net increase in net assets resulting from
operations ................................. $1,428,215
==========
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended December 31,
-----------------------
1996 1995
----------- -----------
Decrease in Net Assets
Operations:
Net investment income ............... $ 222,817 $ 893,578
Realized net gain on investments .... 1,319,497 3,257,848
Unrealized depreciation ............. (114,099) (963,302)
----------- -----------
Net increase in net
assets resulting from
operations ....................... 1,428,215 3,188,124
----------- -----------
Dividends to shareholders from
net investment income (Note 1E):*
Class A ............................. (207,679) (900,579)
Class Y ............................. (3,935) ---
----------- -----------
(211,614) (900,579)
----------- -----------
Capital share transactions:
Proceeds from sale of shares:
Class A (1,323,429 and 3,052,102
shares, respectively)............. 12,402,383 25,203,531
Class Y (58,791 and 0
shares, respectively) ............ 548,325 ---
Proceeds from reinvestment of
dividends:
Class A (22,407 and 102,634
shares, respectively) ............ 204,404 885,915
Class Y (433 and 0
shares, respectively) ............ 3,935 ---
Payments for shares redeemed:
Class A (1,689,423 and 3,983,888
shares, respectively)............. (15,760,355) (33,066,367)
Class Y (2,313 and 0
shares, respectively) ............ (21,078) ---
----------- -----------
Net decrease in net assets
resulting from capital
share transactions ............... (2,622,386) (6,976,921)
----------- -----------
Total decrease ................... (1,405,785) (4,689,376)
Net Assets
Beginning of period .................. 32,732,628 37,422,004
----------- -----------
End of period, including undistributed
net investment income of $4,553
and $420, respectively .............. $31,326,843 $32,732,628
=========== ===========
*See "Financial Highlights" on pages 12 - 13.
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended December 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $8.75 $8.19 $9.97 $5.70 $6.63
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... 0.06 0.24 0.05 0.04 0.06
Net realized and
unrealized gain
(loss) on
investments ..... 0.32 0.56 (1.78) 4.27 (0.93)
----- ----- ----- ----- -----
Total from investment
operations ....... 0.38 0.80 (1.73) 4.31 (0.87)
----- ----- ----- ----- -----
Less dividends from
net investment
income ........... (0.06) (0.24) (0.05) (0.04) (0.06)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $9.07 $8.75 $8.19 $9.97 $5.70
===== ===== ===== ===== =====
Total return* ...... 4.33% 9.80% -17.36% 75.82% -13.18%
Net assets, end
of period (000
omitted) ......... $30,811$32,733 $37,422$46,908 $27,136
Ratio of expenses
to average net
assets ........... 1.84% 1.66% 1.59% 1.69% 1.88%
Ratio of net invest-
ment income to average
net assets ....... 0.66% 2.55% 0.57% 0.48% 0.90%
Portfolio turnover
rate** ........... 101.34%164.21% 64.89% 84.00% 61.50%
Average commission
rate paid ........ $0.0294
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
**This rate is, in general, calculated by dividing the average value of
the Fund's portfolio securities during the period into the lesser of
its purchases or sales of securities in the period, excluding short-
term securities and bullion.
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from 2/27/96*
through
12/31/96
--------
Net asset value,
beginning of period $9.35
-----
Income from investment
operations:
Net investment
income .......... 0.09
Net realized and
unrealized loss
on investments... (0.26)
-----
Total from investment
operations ........ (0.17)
-----
Less dividends from
net investment
income........... (0.11)
-----
Net asset value,
end of period ..... $9.07
=====
Total return ....... -1.88%
Net assets, end of
period (000
omitted) ......... $516
Ratio of expenses
to average net
assets ............ 1.18%**
Ratio of net
investment income
to average net
assets ............ 1.30%**
Portfolio
turnover rate ..... 101.34%**
Average commission
rate paid ........ $0.0294
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- Significant Accounting Policies
United Gold & Government 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 a high total
return through investments in precious metals, minerals-related securities
or U.S. Government Securities. 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 -- Each stock and convertible bond is 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 for a stock, the average of
the latest bid and asked prices. Bonds, other than convertible bonds,
are valued using a pricing system provided by a pricing service or
dealer in bonds. Convertible bonds are valued using this pricing
system only on days when there is no sale reported. Stocks which are
traded over-the-counter are priced using Nasdaq (National Association
of Securities Dealers Automated Quotations System) which provides
information on bid and asked or closing prices quoted by major dealers
in such stocks. Gold and silver bullion are valued at the last spot
settlement price for current delivery as calculated by the Commodity
Exchange, Inc. as of the close of that Exchange. Platinum bullion is
valued at the last spot settlement price for current delivery as
calculated by the New York Mercantile Exchange as of the close of that
Exchange. Securities for which quotations are not readily available
are valued as determined in good faith in accordance with procedures
established by and under the general supervision of the Fund's Board
of Directors. 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 on the purchase of bonds and
post-1984 market discount are amortized for both financial and tax
reporting purposes over the remaining lives of the bonds. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income is recorded on the
accrual basis. See Note 3 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars
daily. Purchases and sales of investment securities and accruals of
income and expenses are translated at the rate of exchange prevailing
on the date of the transaction. For assets and liabilities other than
investments in securities and bullion, net realized and unrealized
gains and losses from foreign currency translations arise from changes
in currency exchange rates. The Fund combines fluctuations from
currency exchange rates and fluctuations in market value when
computing net realized and unrealized gain or loss from investments.
D. 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.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by the Fund on the record date. Net
investment income distributions 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, foreign currency transactions, net operating
losses and expiring capital loss carryforwards. At December 31, 1996,
the Fund reclassified $14,294,514 between additional paid-in-capital
and accumulated net realized loss on investment transactions. Net
investment income, net realized gains and net assets were not affected
by this change.
F. 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 two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the annual rate of .30% of
net assets and (ii) a "Group" fee computed each day on the combined net
asset values of all of the funds in the United Group of mutual funds
(approximately $15.1 billion of combined net assets at December 31, 1996)
at annual rates of .51% of the first $750 million of combined net assets,
.49% on that amount between $750 million and $1.5 billion, .47% between
$1.5 billion and $2.25 billion, .45% between $2.25 billion and $3 billion,
.43% between $3 billion and $3.75 billion, .40% between $3.75 billion and
$7.5 billion, .38% between $7.5 billion and $12 billion, and .36% of that
amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of the Fund.
For these services, the Fund pays WARSCO a monthly fee of one-twelfth of
the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account
charge for transfer agency and dividend disbursement services of $1.3125
for each shareholder account which was in existence at any time during the
prior month ($1.0208 per account prior to April 1, 1996), 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 .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 direct
and indirect gross sales commissions for Class A shares (which are not an
expense of the Fund) of $73,342, out of which W&R paid sales commissions of
$40,750 and all expenses in connection with the sale of Fund shares, except
for registration fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant
to Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay
monthly a fee to W&R in an amount not to exceed .25% of the Fund's Class A
average annual net assets. The fee is to be paid to reimburse W&R for
amounts it expends in connection with the provision of personal services to
Fund shareholders and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $1,357.
W&R is an indirect subsidiary of Torchmark Corporation, a holding
company, and United Investors Management Company, a holding company, and a
direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than U.S. Government and
short-term securities, aggregated $24,688,324 while proceeds from
maturities and sales aggregated $21,922,996. Purchases of bullion
aggregated $3,596,751 while proceeds from the sale of bullion aggregated
$5,583,967. Purchases of short-term securities and U.S. Government
securities aggregated $555,725,000 and $2,135,000, respectively. Proceeds
from maturities and sales of short-term securities and U.S. Government
securities aggregated $548,920,000 and $11,607,227, respectively.
For Federal income tax purposes, cost of investments owned at December
31, 1996 was $29,070,997, resulting in net unrealized appreciation of
$2,261,852, of which $3,044,127 related to appreciated investments and
$782,275 related to depreciated investments.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net
income of $1,937,369 during the year ended December 31, 1996, which
included the effect of certain losses deferred into the next fiscal year
(see discussion below). These net capital gains were entirely offset by
utilization of capital loss carryforwards. Remaining prior year capital
loss carryforwards aggregated $11,894,711 at December 31, 1996, and are
available to offset future capital gain net income as follows: $563,389
through December 31, 1997; $4,507,530 through December 31, 1998; $1,865,351
through December 31, 1999, and $4,958,441 through December 31, 2000.
Internal Revenue Code regulations permit the Fund to defer into its
next fiscal year net capital losses or net long-term capital losses
incurred between each November 1 and the end of its fiscal year (_post-
October losses_). From November 1, 1996 through December 31, 1996, the
Fund incurred net capital losses of $610,801, which were deferred to the
fiscal year ending `December 31, 1997.
NOTE 5 -- Commencement of Multiclass Operations
On February 19, 1996, the Fund was authorized to offer investors a
choice of two classes of shares, Class A and Class Y, each of which has
equal rights as to assets and voting privileges. Class Y shares are not
subject to a sales charge on purchases; they are not subject to a Rule 12b-
1 Service Plan and have a separate transfer agency and dividend
disbursement services fee structure. A comprehensive discussion of the
terms under which shares of either class are offered is contained in the
prospectus and the Statement of Additional Information for the Fund. The
Fund commenced multiclass operations on February 27, 1996.
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 Gold & Government Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of United Gold & Government Fund,
Inc., as of December 31, 1996, the related statements of operations and
changes in net assets for the year then ended, and the financial highlights
for the year then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
the financial highlights based on our audit. The financial statements and
the financial highlights of the Fund for each of the years in the four-year
period ended December 31, 1995 were audited by other auditors whose report,
dated February 8, 1996, expressed an unqualified opinion on those
statements and financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned at December 31, 1996 by correspondence with the custodian
and broker. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the United Gold
& Government Fund, Inc. as of December 31, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for
the year then ended in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 7, 1997
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends below, multiplied by the number of shares
owned by you on the record dates, will give you the total amounts to be
reported in your 1996 Federal income tax return.
PER-SHARE AMOUNTS REPORTABLE AS:
----------------------------------------------
For Individuals For Corporations
-------------------------------------------------------
Record Ordinary Long-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
--------- ----- -------------------------------------------------
Class A
03-15-96 $0.010 $0.0100 $ $0.0034 $0.0066 $
06-14-96 .010 .0100 .0037 .0063
09-13-96 .010 .0100 .0037 .0063
12-13-96 .029 .0290 .0108 .0182
------ ------- ------- ------ ------- -------
Total $0.059 $0.0590 $ $0.0216 $0.0374 $
====== ======= ======= ======= ======= =======
Class Y
03-15-96 $0.011 $0.0110 $ $0.0038 $0.0072 $
06-14-96 .027 .0270 .0101 .0169
09-13-96 .024 .0240 .0089 .0151
12-13-96 .043 .0430 .0160 .0270
------ ------- ------- ------ ------- -------
Total $0.105 $0.1050 $ $0.0388 $0.0662 $
====== ======= ======= ======= ======= =======
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in
the year received as provided by Section 243 of the Internal Revenue Code.
Shareholders are advised to consult with their tax adviser concerning the
tax treatment of dividends and distributions from the Fund.
<PAGE>
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election
not to have taxes withheld. The election may be made by submitting forms
provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service form W-4P.
Once made, an election can be revoked by providing written notice to
Waddell & Reed, Inc. If you elect not to have tax withheld you may be
required to make payments of estimated tax. Penalties may be imposed by
the IRS if withholding and estimated tax payments are not adequate.
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Michael L. Avery, 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
Carl E. Sturgeon, Vice President
This report is submitted for the general information of the shareholders of
United Gold & Government Fund, Inc. It is not authorized for distribution
to prospective investors in the Fund unless accompanied with or preceded by
the United Gold & Government Fund, Inc. current prospectus.
<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
NUR1013A(12-96)
printed on recycled paper
