UNITED
GOLD &
GOVERNMENT
FUND, INC.
ANNUAL
REPORT
-------------------------------------------
For the fiscal year ended December 31, 1997
<PAGE>
MANAGER'S LETTER
DECEMBER 31, 1997
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the United Gold & Government Fund for
the fiscal year ended December 31, 1997. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Low global inflation, a strong equity market and a high supply of gold relative
to demand contributed to low investor interest in gold and in gold-related
securities again in 1997. Although demand for gold has exceeded the supply from
mine production for several years, the demand has more than been met by central
bank sales and lending activity. The result of these combined forces is that
the price of gold has been trading near an eighteen year low.
For some time, we have recognized that it would 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 large supply of
gold relative to demand persist. Our exposure to gold and gold-related
securities as a percent of the total portfolio remains low, with a greater
concentration in fixed income 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 Salomon Brothers
Treasury/Government Sponsored/Mortgage Index) and the universe of funds with
similar investment objectives (the Lipper Gold Oriented Fund Universe Average).
The equity market experienced superior performance relative to the bond and gold
markets during 1997, causing the Fund to underperform the S&P 500 Index. The
Salomon Brothers Index outperformed the Fund primarily due to the Fund's gold-
related investments. The Fund outperformed the Lipper Index primarily due to
the Fund's flexibility to allocate its investments among different asset
classes. We have chosen to use the Salomon Brothers Index beginning with this
year's Annual Report to reflect the performance of the U.S. Government
securities market, instead of the Lehman Brothers Government Bond Index that had
been presented in prior years. We believe that the Salomon Brothers Index
provides a more accurate basis for comparing the Fund's performance to that of
the types of fixed income securities in which the Fund invests. Both indexes
are presented in this year's report for comparison purposes.
Going into 1998, the positives for gold are: capital markets around the world
are nervous; there is a growing sense that wage inflation is on the rise; and
the price of gold is at a low level. These are conditions under which gold has
historically performed very well. However, there also needs to be a
rationalization of uneconomic mines to lower production and reduce excess
supplies of gold. In addition, a major shift in central bank attitude regarding
gold would also have to occur before a sustainable rise in price is achieved.
We are monitoring the developments in the gold market very closely. Due to the
Fund's ability to shift quickly among asset classes, we intend to react swiftly
to take advantage of market changes.
Thank you very much for your continued support and confidence.
Respectfully,
Michael L. Avery
Manager, United Gold & Government Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United Gold & Government Fund, Inc., Class A Shares
The S&P 500 Index, The Lehman Brothers Government Bond Index, The Salomon
Brothers Treasury/ Government Sponsored/ Mortgage Index,
and The Lipper Gold Oriented Fund Universe Average
Salomon
Brothers Lipper
United Lehman Treasury/ Gold
Gold & Brothers Government Oriented
Government S&PGovernment Sponsored/ Fund
Fund, Inc., 500 Bond Mortgage Universe
Class A Shares Index Index Index Average
--------- --------- --------- ----------- ---------
12/31/87 Purchase 9,425 10,000 10,000 10,000 10,000
12/31/88 9,056 11,661 10,704 10,764 8,308
12/31/89 10,724 15,356 12,227 12,329 10,140
12/31/90 8,409 14,880 13,295 13,498 7,900
12/31/91 8,533 19,413 15,332 15,584 7,534
12/31/92 7,409 20,893 16,440 16,720 6,389
12/31/93 13,025 22,998 18,192 18,293 11,392
12/31/94 10,765 23,301 17,579 17,802 9,966
12/31/95 11,820 32,058 20,801 20,976 10,221
12/31/96 12,332 39,419 21,378 21,749 10,957
12/31/97 9,535 52,541 23,426 23,814 6,263
===== United Gold & Government Fund, Inc., Class A Shares* -- $9,535
- ----- S&P 500 Index -- $52,541
+++++ Lehman Bros. Gov't Bond Index -- $23,426
>>>>> Salomon Brothers Treasury/ Gov't Sponsored/ Mortgage Index --
$23,814
_____ Lipper Gold Oriented Fund Universe Average -- $6,263
*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
12/31/97 -27.12% -22.18%
5 Years Ended
12/31/97 3.94% N/A
10 Years Ended
12/31/97 -0.48% N/A
Life of
Class Y +++ N/A -13.61%
+ 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 12/31/97.
<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.
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, 1997
- -------------------------------------------
DIVIDENDS PAID $0.15
=====
NET ASSET VALUE ON
12/31/97 $6.87
12/31/96 9.07
-----
CHANGE PER SHARE ($2.20)
=====
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 12-31-97 -27.12% -22.68%
5-year period ended 12-31-97 3.94% 5.18%
10-year period ended 12-31-97 -0.48% 0.12%
*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, 1997, United Gold & Government Fund, Inc. had net assets
totaling $17,624,774 invested in a diversified portfolio of:
63.69% United States Government Securities
18.61% Common Stocks and Warrants
12.49% Cash and Cash Equivalents
5.21% Preferred Stocks
As a shareholder of United Gold & Government Fund, Inc. for every $100 you had
invested on December 31, 1997, your Fund owned:
$63.69 U.S. Government Securities
12.49 Cash and Cash Equivalents
10.13 Foreign Mining Stocks
8.48 Miscellaneous Stocks
5.21 Preferred Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1997
Shares Value
COMMON STOCKS AND WARRANTS
Gold - 10.13%
Canada
Euro-Nevada Mining Corporation
Limited (A) ........................... 37,400 $ 506,395
Franco-Nevada Mining Corporation
Limited (A) ........................... 28,200 554,489
Goldcorp Inc., Class A (A)* ............ 30,000 118,606
Pangea Goldfields Inc. (A)* ............ 56,000 66,615
Repadre Capital Corporation (A)* ....... 90,000 362,116
Vengold Inc. (A)* ...................... 195,000 177,384
Total ................................. 1,785,605
Miscellaneous
Agricultural Production -- Crops - 1.30%
Dole Food Company, Inc. ................ 5,000 228,750
Oil and Gas Extraction - 1.55%
Tom Brown, Inc.* ....................... 14,100 273,188
Petroleum and Coal Products - 2.46%
Mobil Corporation ...................... 3,000 216,561
Royal Dutch Petroleum Company .......... 4,000 216,748
Total ................................. 433,309
Stone, Clay and Glass Products - 1.86%
Geomaque Explorations Ltd.(A)* ......... 184,400 327,742
Geomaque Explorations Ltd.,
Warrants (A)* ......................... 25,000 875
Total ................................. 328,617
Wholesale Trade -- Nondurable Goods - 1.31%
Fresh Del Monte Produce N.V.* .......... 15,800 231,075
Total Miscellaneous - 8.48% 1,494,939
TOTAL COMMON STOCKS AND WARRANTS - 18.61% $ 3,280,544
(Cost: $3,124,001)
See Notes to Schedule of Investments on page 8.
<PAGE>
THE INVESTMENTS OF
UNITED GOLD & GOVERNMENT FUND, INC.
DECEMBER 31, 1997
Shares Value
PREFERRED STOCKS
Gold
United States
Battle Mountain Gold Company, $3.25,
Convertible* .......................... 10,000 $ 450,000
Hecla Mining Company, Series B, 7%,
Convertible ........................... 10,000 467,500
TOTAL PREFERRED STOCKS - 5.21% $ 917,500
(Cost: $968,887)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-15-2004 ...................... $2,000 2,161,560
7.875%, 11-15-2004 .................... 2,500 2,794,925
7.25%, 5-15-2016 ...................... 3,750 4,271,475
6.0%, 2-15-2026 ....................... 2,000 1,997,500
TOTAL UNITED STATES GOVERNMENT SECURITIES - 63.69% $11,225,460
(Cost: $10,509,801)
SHORT-TERM SECURITIES - 12.40%
Repurchase Agreements
J.P. Morgan Securities, 5.9%
Repurchase Agreement dated
12-31-97, to be repurchased
at $2,185,716 on 1-2-98** ............. 2,185 $ 2,185,000
(Cost: $2,185,000)
TOTAL INVESTMENTS - 99.91% $17,608,504
(Cost: $16,787,689)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.09% 16,270
NET ASSETS - 100.00% $17,624,774
Notes To Schedule Of Investments
*No dividends were paid during the preceding 12 months.
**Collateralized by $1,619,000 U.S. Treasury Notes, 8.875% due 2-15-2019,
market value and accrued interest aggregate $2,223,820.
(A)Listed on an exchange outside the United States.
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, 1997
Assets
Investment securities -- at value (Notes 1 and 3) . $17,608,504
Receivables:
Interest and dividends .......................... 170,063
Fund shares sold ................................ 11,886
Prepaid insurance premium ........................ 10,229
-----------
Total assets .................................. 17,800,682
-----------
Liabilities
Payable to Fund shareholders ..................... 132,641
Due to custodian ................................. 13,038
Accrued transfer agency and
dividend disbursing (Note 2) .................... 12,161
Accrued service fee (Note 2) ..................... 7,465
Accrued accounting services fee (Note 2) ......... 833
Accrued management fee (Note 2) .................. 337
Other ............................................ 9,433
-----------
Total liabilities ............................. 175,908
-----------
Total net assets ............................. $17,624,774
===========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 2,566,750
Additional paid-in capital ...................... 31,394,104
Accumulated undistributed income (loss):
Accumulated undistributed net investment income . 235
Accumulated net realized loss on investment
transactions .................................. (17,157,130)
Net unrealized appreciation in value of
investments ................................... 820,815
-----------
Net assets applicable to outstanding units
of capital.................................... $17,624,774
===========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $6.87
Class Y .......................................... $6.87
Capital shares outstanding
Class A .......................................... 2,510,897
Class Y .......................................... 55,853
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, 1997
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 770,618
Dividends ....................................... 134,905
----------
Total income .................................. 905,523
----------
Expenses (Note 2):
Investment management fee ....................... 170,534
Transfer agency and dividend disbursing - Class A 158,587
Service fee - Class A ........................... 39,751
Registration fees ............................... 33,599
Prospectus printing ............................. 29,549
Accounting services fee ......................... 15,000
Custodian fees .................................. 14,534
Legal fees ...................................... 13,475
Audit fees ...................................... 12,922
Shareholder servicing - Class Y ................. 1,570
Other ........................................... 22,107
----------
Total expenses ................................ 511,628
----------
Net investment income ........................ 393,895
----------
Realized and Unrealized Gain (Loss)
on Investments (Notes 1 and 3)
Realized net loss on bullion ..................... (195,937)
Realized net loss on securities .................. (5,019,069)
Realized net loss on foreign
currency transactions ........................... (7,023)
----------
Realized net loss on investments ................ (5,222,029)
----------
Decrease in unrealized depreciation in value of
bullion during the period ....................... 91,697
Unrealized depreciation in value of securities
during the period ............................... (1,532,734)
----------
Unrealized depreciation in value of investments
during the period ............................. (1,441,037)
----------
Net loss on investments ....................... (6,663,066)
----------
Net decrease in net assets resulting from
operations ................................. $(6,269,171)
==========
See notes to financial statements.
<PAGE>
UNITED GOLD & GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended December 31,
-----------------------
1997 1996
----------- -----------
Decrease in Net Assets
Operations:
Net investment income ............... $ 393,895 $ 222,817
Realized net gain (loss) on investments(5,222,029) 1,319,497
Unrealized depreciation ............. (1,441,037) (114,099)
----------- -----------
Net increase (decrease) in net
assets resulting from
operations ....................... (6,269,171) 1,428,215
----------- -----------
Dividends to shareholders from
net investment income (Note 1E):*
Class A ............................. (380,124) (207,679)
Class Y ............................. (11,066) (3,935)
----------- -----------
(391,190) (211,614)
----------- -----------
Capital share transactions:
Proceeds from sale of shares:
Class A (371,968 and 1,323,429
shares, respectively)............. 3,024,428 12,402,383
Class Y (1,959 and 58,791
shares, respectively) ............ 16,119 548,325
Proceeds from reinvestment of
dividends:
Class A (52,977 and 22,407
shares, respectively) ............ 372,213 204,404
Class Y (1,544 and 433
shares, respectively) ............ 11,066 3,935
Payments for shares redeemed:
Class A (1,312,755 and 1,689,423
shares, respectively) ............ (10,431,419) (15,760,355)
Class Y (4,561 and 2,313
shares, respectively) ............ (34,115) (21,078)
----------- -----------
Net decrease in net assets
resulting from capital
share transactions ............... (7,041,708) (2,622,386)
----------- -----------
Total decrease ................... (13,702,069) (1,405,785)
Net Assets
Beginning of period .................. 31,326,843 32,732,628
----------- -----------
End of period, including undistributed
net investment income of $235
and $4,553, respectively ............ $17,624,774 $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 fiscal year ended December 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.07 $8.75 $8.19 $9.97 $5.70
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... 0.15 0.06 0.24 0.05 0.04
Net realized and
unrealized gain
(loss) on
investments ..... (2.20) 0.32 0.56 (1.78) 4.27
----- ----- ----- ----- -----
Total from investment
operations ....... (2.05) 0.38 0.80 (1.73) 4.31
----- ----- ----- ----- -----
Less dividends from
net investment
income ........... (0.15) (0.06) (0.24) (0.05) (0.04)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $6.87 $9.07 $8.75 $8.19 $9.97
===== ===== ===== ===== =====
Total return* ...... -22.68% 4.33% 9.80%-17.36% 75.82%
Net assets, end
of period (000
omitted) ......... $17,241$30,811 $32,733$37,422 $46,908
Ratio of expenses
to average net
assets ........... 2.11% 1.84% 1.66% 1.59% 1.69%
Ratio of net invest-
ment income to average
net assets ....... 1.60% 0.66% 2.55% 0.57% 0.48%
Portfolio turnover
rate** ........... 94.00%101.34% 164.21% 64.89% 84.00%
Average commission
rate paid ........ $0.0250$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 Each Period:
For the For the
fiscal period
year from 2/27/96*
ended through
12/31/97 12/31/96
-------- --------
Net asset value,
beginning of period $9.07 $9.35
----- -----
Income from investment
operations:
Net investment
income .......... 0.19 0.09
Net realized and
unrealized loss
on investments... (2.19) (0.26)
----- -----
Total from investment
operations ........ (2.00) (0.17)
----- -----
Less dividends from
net investment
income ............ (0.20) (0.11)
----- -----
Net asset value,
end of period ..... $6.87 $9.07
===== =====
Total return ....... -22.18% -1.88%
Net assets, end of
period (000
omitted) ......... $384 $516
Ratio of expenses
to average net
assets ............ 1.44% 1.18%**
Ratio of net
investment income
to average net
assets ............ 2.31% 1.30%**
Portfolio
turnover rate*** . 94.00% 101.34%**
Average commission
rate paid ........ $0.0250 $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
DECEMBER 31, 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 the Nasdaq Stock Market, 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.
At December 31, 1997, the Fund reclassified $563,388 between additional
paid-in-capital and accumulated net realized loss on investment
transactions. In addition, $7,023 was reclassified between accumulated
undistributed net investment income and accumulated undistributed net
realized gain 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 $17.8 billion of
combined net assets at December 31, 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
$41,464, out of which W&R paid sales commissions of $23,342 and all expenses in
connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $1,036, 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 $15,426,998 while proceeds from maturities and sales
aggregated $16,587,211. Purchases of bullion aggregated $1,760,699 while
proceeds from the sale of bullion aggregated $3,112,916. Purchases of short-
term securities and U.S. Government securities aggregated $748,413,000 and
$3,988,281, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $753,683,000 and
$3,256,797, respectively.
For Federal income tax purposes, cost of investments owned at December 31,
1997 was $16,787,689, resulting in net unrealized appreciation of $820,815, of
which $1,621,648 related to appreciated investments and $800,833 related to
depreciated investments.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$3,445,005 during the year ended December 31, 1997, which included the effect of
certain losses deferred into the next fiscal year, as well as the effect of
losses recognized from the prior year (see discussion below). The realized
losses are available to offset future realized capital gain net income through
December 31, 2005. In addition, prior year capital loss carryforwards
aggregated $11,331,322 at December 31, 1997, and are available to offset future
capital gain net income as follows: $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, 1997 through December 31, 1997, the Fund incurred net capital losses
of $2,380,802, which have been deferred to the fiscal year ending `December 31,
1998. In addition, during the year ended December 31, 1997, the Fund recognized
post-October losses of $610,801 that had been deferred from the year ended
December 31, 1996.
NOTE 5 -- 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 Distribution and
Service Plan and have a separate transfer agency and dividend disbursement
services fee structure. A comprehensive discussion of the terms under which
shares of either class are offered is contained in the prospectus and the
Statement of Additional Information for the Fund. 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 December 31, 1997, and the related statements of operations for the year
then ended and changes in net assets for each of the years in the two-year
period then ended, and the financial highlights for each of the years in the
five-year period then ended. 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
December 31, 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 December 31, 1997, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 6, 1998
<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
1997 Federal income tax return.
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------------------
For Individuals For Corporations
-------------------------------------------------------------
- --
Record OrdinaryLong-Term Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% RateQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ---------------------------------------
Class A
03-14-97 $0.010 $0.0100 $0.0000 $0.0000 $0.0029 $0.0071 $0.0000
06-13-97 .010 .0100 .0000 .0000 .0027 .0073 .0000
09-12-97 .010 .0100 .0000 .0000 .0027 .0073 .0000
12-12-97 .115 .1150 .0000 .0000 .0313 .0837 .0000
------ ------- ------- ------- ------- ------- -------
Total $0.145 $0.1450 $0.0000 $0.0000 $0.0396 $0.1054 $0.0000
====== ======= ======= ======= ======= ======= =======
Class Y
03-14-97 $0.023 $0.0230 $0.0000 $0.0000 $0.0067 $0.0163 $0.0000
06-13-97 .021 .0210 .0000 .0000 .0057 .0153 .0000
09-12-97 .023 .0230 .0000 .0000 .0063 .0167 .0000
12-12-97 .128 .1280 .0000 .0000 .0349 .0931 .0000
------ ------- ------- ------- ------- ------- -------
Total $0.195 $0.1950 $0.0000 $0.0000 $0.0536 $0.1414 $0.0000
====== ======= ======= ======= ======= ======= =======
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>
Shareholder Meeting Results
A special meeting of shareholders of United Gold & Government Fund, Inc. was
held on July 28, 1997. The matters voted upon by the shareholders and the
resulting votes for each matter are presented below.
Item 1. To elect the Board of Directors;
Broker
For Withheld Non-Votes*
Henry L. Bellmon 1,618,952 72,472 0
Dodds I. Buchanan 1,624,357 67,067 0
James M. Concannon 1,623,977 67,447 0
John A. Dillingham 1,622,325 69,099 0
Linda Graves 1,611,669 79,755 0
John F. Hayes 1,621,387 70,037 0
Glendon E. Johnson 1,619,106 72,318 0
William T. Morgan 1,621,767 69,657 0
Ronald K. Richey 1,621,955 69,469 0
William L. Rogers 1,617,956 73,468 0
Frank J. Ross, Jr. 1,624,357 67,067 0
Eleanor B. Schwartz 1,620,689 70,735 0
Keith A. Tucker 1,622,373 69,051 0
Frederick Vogel III 1,620,483 70,941 0
Paul S. Wise 1,619,040 72,384 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*
1,576,087 26,416 88,921 0
Item 3. To approve or disapprove changes to certain of its fundamental
investment policies and restrictions:
3.1 Elimination of Fundamental Restriction Regarding Restricted
Securities
Broker
For Against Abstain Non-Votes*
1,495,460 75,818 117,553 2,593
3.2 Modification of Fundamental Restriction Regarding Diversification
of Assets
Broker
For Against Abstain Non-Votes*
1,495,354 75,924 117,553 2,593
3.3 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against Abstain Non-Votes*
1,489,166 82,112 117,553 2,593
3.4 Elimination of Fundamental Restriction Regarding Mortgaging or
Pledging Securities
Broker
For Against Abstain Non-Votes*
1,488,941 82,337 117,553 2,593
3.5 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against Abstain Non-Votes*
1,490,774 80,504 117,553 2,593
3.6 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against Abstain Non-Votes*
1,495,153 76,125 117,553 2,593
3.7 Elimination of Fundamental Restriction Regarding Foreign Currencies
Broker
For Against Abstain Non-Votes*
1,495,070 76,208 117,553 2,593
3.8 Elimination of Fundamental Restriction Regarding Arbitrage
Transactions
Broker
For Against Abstain Non-Votes*
1,493,699 77,579 117,553 2,593
3.9 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against Abstain Non-Votes*
1,490,619 80,659 117,553 2,593
3.10 Modification of Fundamental Policy Regarding Loans
Broker
For Against Abstain Non-Votes*
1,495,266 76,012 117,553 2,593
Item 4. To amend the terms of the service plan adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940.
Broker
For Against Abstain Non-Votes*
1,387,967 98,248 147,996 617
* 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>
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.
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
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(12-97)
printed on recycled paper
