UNITED
GOLD &
GOVERNMENT
FUND, INC.
SEMIANNUAL
REPORT
--------------------------------------
For the six months ended June 30, 1997
<PAGE>
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>
PRESIDENT'S LETTER
JUNE 30, 1997
Dear Shareholder:
As Waddell & Reed celebrates its 60th anniversary in the financial services
industry, I would like to thank you for your continued confidence in our
products and services. Since we opened our doors in 1937, our goal has
been and continues to be to provide the best service possible to our
shareholders. This commitment is reflected in every area of our
organization: starting with your financial advisor and continuing with our
investment management and customer service people of our affiliated
companies.
Your confidence in the success of the products and services offered by
Waddell & Reed and its affiliates is reflected in the growth the Funds have
experienced over our 60 years. Total mutual fund assets under management
reached the $1 billion mark in 1961, and over the $5 billion mark in 1985.
As of June 30, 1997, mutual fund assets under management totaled more than
$19.3 billion.
We look forward to helping you meet the financial goals that are important
to you, now and for many years to come. Should you have any questions
about your account or other financial issues that are important to you,
contact your financial advisor or your local Waddell & Reed office.
They're ready to help you make the most of your financial future.
Respectfully,
Keith A. Tucker
President
<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 Six Months Ended June 30, 1997
--------------------------------------
DIVIDENDS PAID $0.02
=====
NET ASSET VALUE ON
6/30/97 $7.88
12/31/96 9.07
-----
CHANGE PER SHARE $(1.19)
=====
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 6-30-97 -18.21% -13.21%
5-year period ended 6-30-97 3.22% 4.45%
10-year period ended 6-30-97 -0.36% 0.24%
*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 June 30, 1997, United Gold & Government Fund, Inc. had net assets
totaling $23,968,087 invested in a diversified portfolio of:
49.73% Common Stocks and Warrants
27.57% United States Government Securities
18.75% Cash and Cash Equivalents
3.95% Preferred Stocks
As a shareholder of United Gold & Government Fund, Inc. for every $100 you
had invested on June 30, 1997, your Fund owned:
$36.03 Foreign Mining Stocks
27.57 U.S. Government Securities
18.75 Cash and Cash Equivalents
10.85 U.S. Mining Stocks
3.95 Preferred Stocks
2.85 Miscellaneous Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
JUNE 30, 1997
Shares Value
COMMON STOCKS AND WARRANTS
Gold
Australia - 6.18%
Acacia Resources Limited* .............. 200,000 $ 262,914
Newcrest Mining Limited ................ 177,500 490,676
Plutonic Resources Limited ............. 135,000 422,249
Ranger Minerals NL* .................... 100,000 305,978
Total ................................. 1,481,817
Canada - 29.85%
Barrick Gold Corporation ............... 35,000 770,000
Bema Gold Corporation* ................. 120,000 725,456
Dayton Mining Corporation* ............. 125,000 434,405
Eldorado Gold Corporation* ............. 103,700 405,430
Euro-Nevada Mining Corporation Limited . 27,200 836,953
Franco-Nevada Mining Corporation Limited 19,600 982,696
Goldcorp Inc., Class A* ................ 30,000 216,116
Greenstone Resources Ltd.* ............. 65,000 569,432
Kinross Gold Corporation* .............. 43,000 191,464
Pangea Goldfields Inc.* ................ 72,500 209,962
Placer Dome Inc. ....................... 25,000 409,375
Repadre Capital Corporation* ........... 90,000 524,544
TVX Gold Inc.* ......................... 85,000 451,520
Vengold Inc.* .......................... 195,000 268,245
William Resources Inc.* ................ 103,000 160,332
Total ................................. 7,155,930
United States - 6.95%
Canyon Resources Corporation* .......... 100,000 243,700
Homestake Mining Company ............... 40,000 522,480
Newmont Gold Company ................... 22,500 898,583
Total ................................. 1,664,763
Total Gold - 42.98% 10,302,510
Metals - 3.90%
United States
Freeport-McMoRan Copper & Gold Inc. .... 30,000 933,750
Miscellaneous
Electric, Gas and Sanitary Services - 1.07%
Sonat Inc. ............................ 5,000 256,250
Stone, Clay and Glass Products - 1.78%
Geomaque Explorations Ltd.* ............ 134,400 311,382
Geomaque Explorations Ltd., Special
Warrants* ............................. 50,000 115,841
Total ................................. 427,223
Total Miscellaneous - 2.85% 683,473
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
JUNE 30, 1997
Shares Value
TOTAL COMMON STOCKS AND WARRANTS - 49.73% $11,919,733
(Cost: $11,926,118)
PREFERRED STOCKS
Gold
United States
Battle Mountain Gold Company, $3.25,
Convertible............................ 10,000 478,120
Hecla Mining Company, Series B, 7%,
Convertible ........................... 10,000 466,870
TOTAL PREFERRED STOCKS-3.95% $ 944,990
(Cost: $968,887)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-15-2004 ...................... $2,000 2,085,000
7.875%, 11-15-2004 .................... 2,500 2,698,050
7.25%, 5-15-2016 ...................... 1,750 1,824,918
TOTAL UNITED STATES GOVERNMENT SECURITIES - 27.57% $ 6,607,968
(Cost: $6,533,185)
SHORT-TERM SECURITIES - 13.37%
Repurchase Agreements
J. P. Morgan Securities, 5.9%
Repurchase Agreement dated
6-30-97 to be repurchased
at $3,205,525 on 7-1-97** ............. 3,205 $ 3,205,000
(Cost: $3,205,000)
TOTAL INVESTMENTS - 94.62% $22,677,691
(Cost: $22,633,190)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 5.38% 1,290,396
NET ASSETS - 100.00% $23,968,087
Notes To Schedule Of Investments
*No dividends were paid during the preceding 12 months.
**Collateralized by $2,134,000 U.S. Treasury Notes, 12.5% due 8-15-2014,
market value and accrued interest aggregate $3,258,759.
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
JUNE 30, 1997
Assets
Investment securities -- at value (Notes 1 and 3) . $22,677,691
Cash ............................................. 1,672
Receivables:
Investment securities sold ...................... 1,290,694
Interest and dividends .......................... 105,099
Fund shares sold ................................ 24,758
Prepaid insurance premium ........................ 9,477
-----------
Total assets .................................. 24,109,391
-----------
Liabilities
Payable to Fund shareholders ..................... 90,837
Accrued transfer agency and
dividend disbursing (Note 2) .................... 16,602
Accrued service fee (Note 2) ..................... 7,660
Accrued accounting services fee (Note 2) ......... 1,667
Accrued management fee (Note 2) .................. 459
Other ............................................ 24,079
-----------
Total liabilities ............................. 141,304
-----------
Total net assets ............................. $23,968,087
===========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 3,041,327
Additional paid-in capital ...................... 34,986,762
Accumulated undistributed income (loss):
Accumulated undistributed net investment income . 104,277
Accumulated net realized loss on investment
transactions .................................. (14,208,780)
Net unrealized appreciation in value of
investments ................................... 44,501
-----------
Net assets applicable to outstanding units
of capital.................................... $23,968,087
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.88
Class Y .......................................... $7.88
Capital shares outstanding
Class A .......................................... 2,984,154
Class Y .......................................... 57,173
Capital shares authorized .......................... 100,000,000
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended JUNE 30, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 356,327
Dividends ....................................... 94,096
----------
Total income .................................. 450,423
----------
Expenses (Note 2):
Investment management fee ....................... 97,297
Transfer agency and dividend disbursing - Class A 85,029
Registration fees ............................... 20,458
Service fee - Class A ........................... 15,744
Legal fees ...................................... 10,574
Accounting services fee ......................... 10,000
Audit fees ...................................... 8,727
Custodian fees .................................. 8,711
Shareholder servicing - Class Y ................. 258
Other ........................................... 25,508
----------
Total expenses ................................ 282,306
----------
Net investment income ........................ 168,117
----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net loss on bullion ..................... (195,938)
Realized net loss on securities .................. (1,507,330)
Realized net loss on foreign
currency transactions ........................... (3,357)
----------
Realized net loss on investments ................ (1,706,625)
----------
Decrease in unrealized depreciation in value of
bullion during the period ....................... 91,697
Unrealized depreciation in value of securities
during the period ............................... (2,309,048)
----------
Unrealized depreciation in value of investments
during the period ............................. (2,217,351)
----------
Net loss on investments ....................... (3,923,976)
----------
Net decrease in net assets resulting from
operations ................................. $(3,755,859)
==========
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
June 30, December 31,
1997 1996
----------- -----------
Decrease in Net Assets
Operations:
Net investment income ............... $ 168,117 $ 222,817
Realized net gain (loss) on investments(1,706,625) 1,319,497
Unrealized depreciation ............. (2,217,351) (114,099)
----------- -----------
Net increase (decrease) in net
assets resulting from
operations ....................... (3,755,859) 1,428,215
----------- -----------
Dividends to shareholders from
net investment income (Note 1E):*
Class A ............................. (62,521) (207,679)
Class Y ............................. (2,515) (3,935)
----------- -----------
(65,036) (211,614)
----------- -----------
Capital share transactions:
Proceeds from sale of shares:
Class A (191,844 and 1,323,429
shares, respectively)............. 1,673,509 12,402,383
Class Y (1,275 and 58,791
shares, respectively) ............ 11,015 548,325
Proceeds from reinvestment of
dividends:
Class A (7,101 and 22,407
shares, respectively) ............ 61,273 204,404
Class Y (291 and 433
shares, respectively) ............ 2,515 3,935
Payments for shares redeemed:
Class A (613,498 and 1,689,423
shares, respectively) ............ (5,275,440) (15,760,355)
Class Y (1,304 and 2,313
shares, respectively) ............ (10,733) (21,078)
----------- -----------
Net decrease in net assets
resulting from capital
share transactions ............... (3,537,861) (2,622,386)
----------- -----------
Total decrease ................... (7,358,756) (1,405,785)
Net Assets
Beginning of period .................. 31,326,843 32,732,628
----------- -----------
End of period, including undistributed
net investment income of $104,277
and $4,553, respectively ............ $23,968,087 $31,326,843
=========== ===========
*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
six monthsFor the fiscal year ended December 31,
ended ---------------------------------------
6/30/97 1996 1995 1994 1993 1992
---------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.07 $8.75 $8.19 $9.97 $5.70 $6.63
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... 0.05 0.06 0.24 0.05 0.04 0.06
Net realized and
unrealized gain
(loss) on
investments ..... (1.22) 0.32 0.56 (1.78) 4.27 (0.93)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... (1.17) 0.38 0.80 (1.73) 4.31 (0.87)
----- ----- ----- ----- ----- -----
Less dividends from
net investment
income ........... (0.02) (0.06) (0.24) (0.05) (0.04) (0.06)
----- ----- ----- ----- ----- -----
Net asset value,
end of period ..... $7.88 $9.07 $8.75 $8.19 $9.97 $5.70
===== ===== ===== ===== ===== =====
Total return* ...... -12.92% 4.33% 9.80% -17.36% 75.82% -13.18%
Net assets, end
of period (000
omitted) .........$23,517 $30,811$32,733 $37,422$46,908 $27,136
Ratio of expenses
to average net
assets ........... 2.04%***1.84% 1.66% 1.59% 1.69% 1.88%
Ratio of net invest-
ment income to average
net assets ....... 1.20%***0.66% 2.55% 0.57% 0.48% 0.90%
Portfolio turnover
rate** ........... 41.05% 101.34%164.21% 64.89% 84.00% 61.50%
Average commission
rate paid ........ $0.0275 $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.
***Annualized.
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six period
months from 2/27/96*
ended through
6/30/97 12/31/96
-------- --------
Net asset value,
beginning of period $9.07 $9.35
----- -----
Income from investment
operations:
Net investment
income .......... 0.07 0.09
Net realized and
unrealized loss
on investments... (1.22) (0.26)
----- -----
Total from investment
operations ........ (1.15) (0.17)
----- -----
Less dividends from
net investment
income ............ (0.04) (0.11)
----- -----
Net asset value,
end of period ..... $7.88 $9.07
===== =====
Total return ....... -12.68% -1.88%
Net assets, end of
period (000
omitted) ......... $451 $516
Ratio of expenses
to average net
assets ............ 1.50%** 1.18%**
Ratio of net
investment income
to average net
assets ............ 1.73%** 1.30%**
Portfolio
turnover rate*** . 41.05% 101.34%**
Average commission
rate paid ........ $0.0275 $0.0294
*Commencement of operations.
**Annualized.
***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.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
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 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, foreign currency transactions, net operating
losses and expiring capital loss carryforwards.
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 $16.9 billion of combined net assets at June 30, 1997) 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, 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 gross
sales commissions for Class A shares (which are not an expense of the Fund)
of $24,074, out of which W&R paid sales commissions of $13,571 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 $593, which are included in other
expenses.
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 $10,194,385 while proceeds from
maturities and sales aggregated $6,064,220. Purchases of bullion
aggregated $1,760,699 while proceeds from the sale of bullion aggregated
$3,112,916. Purchases of short-term securities aggregated $445,113,000.
Proceeds from maturities and sales of short-term securities and U.S.
Government securities aggregated $449,363,000 and $3,256,797, respectively.
For Federal income tax purposes, cost of investments owned at June 30,
1997 was $22,633,190, resulting in net unrealized appreciation of $44,501,
of which $2,244,964 related to appreciated investments and $2,200,463
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. (the _Fund_) as of June 30, 1997, the related
statements of operations for the six-month period then ended and
changes in net assets for the six-month period then ended and the
year ended December 31, 1996, and the financial highlights for the
periods presented. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned at June 30, 1997 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 audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
United Gold & Government Fund, Inc. as of June 30, 1997, the results
of its operations, the changes in its net assets and the financial
highlights for the periods presented in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 1, 1997
<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
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
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
NUR1013SA(6-97)
printed on recycled paper
