United
Vanguard
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1997
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1997
Dear Shareholder:
This report relates to the operation of United Vanguard Fund, Inc. for the
fiscal year ended September 30, 1997. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
During the past fiscal year, the domestic economy was characterized by
strong growth, stable to lower interest rates, low inflation, increased currency
volatility and generally rising financial market prices. The low inflation
rates resulted primarily from intense national and worldwide competition and, in
turn, contributed to lower interest rates and strong equity market returns. The
strong U.S. economy has created increased federal tax receipts and the real
possibility of a balanced federal budget next year for the first time in thirty
years. These trends have increasingly attracted international investments in
U.S. markets and strengthened the U.S. dollar.
With the Fund Manager change in July of this year, we have shifted the
Fund's investment philosophy to focus on companies that show potential for
providing high returns on invested capital. At that time, we began the process
of altering the Fund's portfolio in favor of attractively priced companies in
what we feel are solid business sectors, based upon our analysis of economic
value. As detailed later in this report, the Fund's holdings now include
Colgate-Palmolive Company, Harley-Davidson, Inc., Eli Lilly and Company, Philip
Morris Companies Inc., MGIC Investment Corporation, Texas Instruments
Incorporated, The Home Depot, Inc., Wells Fargo & Company, PepsiCo, Inc., cisco
Systems, Inc. and securities issued by the Federal National Mortgage Association
(Fannie Mae). The Fund's international exposure has been reduced significantly,
but multinational exposure (U.S. companies that generate a significant part of
their sales and earnings outside of the country) has been emphasized.
The strategies and techniques we applied resulted in the Fund's performance
remaining below that of the indexes charted on the following page. The indexes
shown in the chart reflect the performance of securities that generally
represent the stock market (the S&P 500 Composite Stock Index) and the universe
of funds with similar investment objectives (the Lipper Growth Fund Universe
Average). The Fund's underperformance relative to the indexes resulted
primarily from its large cash and international equity positions prior to the
Fund Manager change.
We anticipate that economic growth and corporate earnings growth will
remain steady as the new fiscal year begins. While equity investments should
continue to provide attractive long-term returns, we are skeptical that the
recent extraordinary performance of the equity market will continue
indefinitely. We are committed to continuing our effort to identify attractive
investment opportunities in multinational growth companies which are positioned
in highly profitable business sectors.
We appreciate your continued confidence.
Respectfully,
Daniel P. Becker
Manager, United Vanguard Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United Vanguard Fund, Inc. Class A Shares,
The Standard & Poor's 500 Composite Stock Index,
and The Lipper Growth Fund Universe Average
Lipper
United S&P Growth
Vanguard 500 Fund
Fund, Composite Universe
Inc.Stock Index Average
------------------ ----------
09/30/87 $ 9,425 $10,000 $10,000
09/30/88 8,622 8,764 8,802
09/30/89 10,664 11,656 11,308
09/30/90 9,313 10,579 9,794
09/30/91 12,189 13,876 13,163
09/30/92 12,118 15,411 14,146
09/30/93 14,345 17,414 16,726
09/30/94 16,046 18,055 16,950
09/30/95 20,350 23,426 21,586
09/30/96 21,081 28,190 25,018
09/30/97 26,057 39,605 33,269
==== United Vanguard Fund* -- $26,057
++++ Standard & Poor's 500 Composite Stock Index -- $39,605
---- Lipper Growth Fund Universe Average -- $33,269
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Annual Average Total Return +
Class A++ Class Y
-----------------------------
Year Ended
9/30/97 16.49% 23.87%
5 Years Ended
9/30/97 15.17% N/A
10 Years Ended
9/30/97 10.05% N/A
Life of Class Y +++ N/A 12.47%
+ 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.
+++ 9/8/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 9/30/97.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Vanguard Fund, Inc.
PORTFOLIO STRATEGY:
Common stock of companies OBJECTIVE: Appreciation of
thought to have superior capital.
prospects for growth and/or
other unique investment STRATEGY: Invests in securities
characteristics primarily issued by
companies believed to
May invest in Foreign have the potential for
Securities appreciation in
value and seeks to
Cash Reserves achieve proper timing of purchases and
sales relative to market conditions.
(May purchase securities subject to
repurchase agreements. May invest in
certain options and futures.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Vanguard Fund
from time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1969
SCHEDULED DIVIDEND FREQUENCY: SEMIANNUALLY (June and December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1997
- --------------------------------------------
DIVIDENDS PAID $0.06
=====
CAPITAL GAINS DISTRIBUTION $1.36
=====
NET ASSET VALUE ON
9/30/97 $9.11 adjusted to:$10.47 (A)
9/30/96 8.77
-----
CHANGE PER SHARE $1.70
=====
(A)This number includes the capital gains distribution of $1.36 paid in December
1996 added to the actual net asset value on September 30, 1997.
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 9-30-97 16.49% 23.60%
5-year period ended 9-30-97 15.17% 16.54%
10-year period ended 9-30-97 10.05% 10.70%
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 September 30, 1997, United Vanguard Fund, Inc. had net assets totaling
$1,482,609,536 invested in a diversified portfolio of:
97.90% Common Stocks
1.84% Cash and Cash Equivalents
0.26% Preferred Stock
As a shareholder of United Vanguard Fund, Inc., for every $100 you had invested
on September 30, 1997, your Fund owned:
$51.46 Manufacturing Stocks
15.88 Finance, Insurance and Real Estate Stocks
13.64 Wholesale and Retail Trade Stocks
8.44 Services Stocks
5.13 Transportation, Communication, Electric
and Sanitary Services Stocks
1.84 Cash and Cash Equivalents
1.73 Miscellaneous Investing Institutions Stocks
1.62 Contract Construction Stocks
0.26 Preferred Stock
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 2.57%
Nordstrom, Inc. ........................ 260,000 $ 16,599,180
Payless ShoeSource, Inc.* .............. 360,000 21,487,320
Total ................................. 38,086,500
Building Materials and Garden Supplies - 2.11%
Home Depot, Inc. (The) ................. 600,000 31,275,000
Business Services - 4.60%
America Online, Inc.* .................. 349,900 26,395,406
CORESTAFF, Inc.* ....................... 403,000 13,021,736
Manpower Inc. .......................... 730,000 28,835,000
Total ................................. 68,252,142
Chemicals and Allied Products - 7.41%
Colgate-Palmolive Company .............. 400,000 27,874,800
Lilly (Eli) and Company ................ 200,000 24,087,400
Novartis AG (A) ........................ 13,092 20,081,301
Pfizer Inc. ............................ 290,000 17,417,980
Praxair, Inc. .......................... 400,000 20,474,800
Total ................................. 109,936,281
Communication - 3.17%
Nokia Corporation, Series A, ADR ....... 400,000 37,550,000
Nokia Corporation, Series K (A) ........ 100,000 9,471,595
Total ................................. 47,021,595
Depository Institutions - 3.78%
BankAmerica Corporation ................ 360,000 26,392,320
Comerica Incorporated .................. 130,000 10,261,810
Wells Fargo & Company .................. 70,400 19,360,000
Total ................................. 56,014,130
Electronic and Other Electric Equipment - 8.73%
Altera Corp.* .......................... 300,000 15,384,300
Analog Devices, Inc.* .................. 500,000 16,750,000
Emerson Electric Co. ................... 310,000 17,863,750
Intel Corporation ...................... 400,000 36,962,400
Texas Instruments Incorporated ......... 313,800 42,441,450
Total ................................. 129,401,900
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 2.71%
ConAgra, Inc. .......................... 125,000 $ 8,250,000
PepsiCo, Inc. .......................... 470,000 19,064,140
Wm. Wrigley Jr. Company ................ 170,000 12,803,040
Total ................................. 40,117,180
Furniture and Home Furnishings Stores - 0.47%
CompUSA Inc.* .......................... 200,000 7,000,000
General Merchandise Stores - 3.05%
Kohl's Corporation* .................... 250,000 17,750,000
Wal-Mart Stores, Inc. .................. 750,000 27,468,750
Total ................................. 45,218,750
Health Services - 2.75%
Health Management Associates, Inc.,
Class A* .............................. 400,000 12,650,000
Tenet Healthcare Corporation* .......... 500,000 14,562,500
Vencor, Incorporated* .................. 330,000 13,612,500
Total ................................. 40,825,000
Holding and Other Investment Offices _ 1.73%
LTC Properties, Inc. ................... 350,000 6,650,000
Randstad Holding nv (A) ................ 462,500 19,006,531
Total ................................. 25,656,531
Industrial Machinery and Equipment - 16.29%
Applied Materials, Inc.* ............... 975,000 92,898,975
Caterpillar Inc. ....................... 200,000 10,787,400
cisco Systems, Inc.* ................... 300,000 21,927,900
Compaq Computer Corporation* ........... 300,000 22,425,000
Cummins Engine Company, Inc. ........... 109,000 8,508,758
Eaton Corporation ...................... 325,000 30,021,875
Lam Research Corporation* .............. 300,000 13,959,300
Parker Hannifin Corporation ............ 910,000 40,950,000
Total ................................. 241,479,208
Instruments and Related Products - 5.68%
Baxter International Inc. .............. 190,000 9,927,500
Input/Output, Inc.* .................... 500,000 14,812,500
KLA-Tencor Corporation* ................ 400,000 27,012,400
Medtronic, Inc. ........................ 480,000 22,560,000
SCI Systems, Inc.* ..................... 200,000 9,912,400
Total ................................. 84,224,800
Insurance Carriers - 6.84%
Allstate Corporation (The) ............. 400,000 32,150,000
American International Group, Inc. ..... 150,000 15,478,050
MBIA Inc. .............................. 200,300 25,125,031
MGIC Investment Corporation ............ 500,000 28,656,000
Total ................................. 101,409,081
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
Motion Pictures - 1.09%
Walt Disney Company (The) .............. 200,000 $ 16,125,000
Nondepository Institutions - 5.26%
Fannie Mae ............................. 750,000 35,250,000
Freddie Mac ............................ 600,000 21,150,000
SLM Holding Corporation ................ 140,000 21,630,000
Total ................................. 78,030,000
Petroleum and Coal Products - 1.68%
Royal Dutch Petroleum Company .......... 450,000 24,975,000
Railroad Transportation - 1.96%
Burlington Northern Santa Fe Corporation 300,000 28,987,500
Special Trade Contractors - 1.62%
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 500,000 23,984,000
Tobacco Products - 4.04%
Philip Morris Companies Inc. ........... 1,440,000 59,849,280
Transportation Equipment - 4.92%
Boeing Company (The) ................... 300,000 16,331,100
Harley-Davidson, Inc. .................. 1,040,000 30,354,480
Sundstrand Corporation ................. 455,300 26,236,663
Total ................................. 72,922,243
Wholesale Trade _ Durable Goods - 4.65%
Johnson & Johnson ...................... 250,000 14,406,250
Motorola, Inc. ......................... 759,500 54,589,062
Total ................................. 68,995,312
Wholesale Trade _ Nondurable Goods - 0.79%
Unilever N.V. .......................... 55,000 11,694,375
TOTAL COMMON STOCKS - 97.90% $1,451,480,808
(Cost: $1,202,998,905)
PREFERRED STOCK - 0.26%
Holding and Other Investment Offices
LTC Properties, Inc., 9.5% ............. 150,000 $ 3,890,550
(Cost: $3,926,300)
TOTAL SHORT-TERM SECURITIES - 1.18% $ 17,505,483
(Cost: $17,505,483)
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1997
Value
TOTAL INVESTMENT SECURITIES - 99.34% $1,472,876,841
(Cost: $1,224,430,688)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.66% 9,732,695
NET ASSETS - 100.00% $1,482,609,536
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(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 VANGUARD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1997
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $1,472,876,841
Cash ............................................ 3,935
Receivables:
Investment securities sold ...................... 10,883,562
Dividends and interest .......................... 1,851,716
Fund shares sold ................................ 937,360
Prepaid insurance premium ........................ 40,738
--------------
Total assets .................................. 1,486,594,152
--------------
Liabilities
Payable to Fund shareholders ..................... 3,198,090
Accrued service fee (Note 2) ..................... 411,440
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 291,255
Accrued accounting services fee (Note 2) ......... 8,333
Accrued management fee (Note 2) .................. 28,284
Other ............................................ 47,214
--------------
Total liabilities ............................. 3,984,616
--------------
Total net assets ............................. $1,482,609,536
==============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 162,671,918
Additional paid-in capital ...................... 784,234,672
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 6,453,555
Accumulated undistributed net realized gain on
investment transactions ....................... 280,804,725
Net unrealized appreciation in value of
investments .................................... 248,444,666
--------------
Net assets applicable to outstanding
units of capital ............................. $1,482,609,536
==============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.11
Class Y .......................................... $9.12
Capital shares outstanding
Class A .......................................... 162,094,969
Class Y .......................................... 576,949
Capital shares authorized .......................... 600,000,000
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1997
Investment Income
Income(Note 1B):
Interest and amortization ....................... $ 14,010,279
Dividends ....................................... 12,643,347
------------
Total income .................................. 26,653,626
------------
Expenses (Note 2):
Investment management fee ....................... 9,591,674
Transfer agency and dividend disbursing - Class A 2,645,674
Service fee - Class A ........................... 2,063,831
Custodian fees .................................. 176,054
Accounting services fee ......................... 100,000
Audit fees ...................................... 28,144
Legal fees ...................................... 24,576
Shareholder servicing - Class Y ................. 8,726
Other ........................................... 288,839
------------
Total expenses ................................ 14,927,518
------------
Net investment income ........................ 11,726,108
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 1 and 3)
Realized net gain on securities .................. 332,429,616
Realized net loss on foreign currency
transactions .................................... (104,883)
------------
Realized net gain on investments ................ 332,324,733
Unrealized depreciation in value of investments
during the period ............................... (52,010,329)
------------
Net gain on investments ....................... 280,314,404
------------
Net increase in net assets resulting
from operations ............................ $292,040,512
============
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year
ended September 30,
-----------------------------
1997 1996
Increase in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 11,726,108 $ 4,600,019
Realized net gain on investments . 332,324,733 146,213,063
Unrealized depreciation .......... (52,010,329) (104,771,885)
-------------- --------------
Net increase in net assets
resulting from operations ..... 292,040,512 46,041,197
-------------- --------------
Distributions to shareholders (Note 1E):*
From net investment income
Class A ........................ (9,105,155) (5,362,420)
Class Y ........................ (42,297) (18,377)
From realized gains on securities
transactions
Class A ........................ (197,514,902) (64,486,580)
Class Y ........................ (690,293) (115,078)
-------------- --------------
(207,352,647) (69,982,455)
Capital share transactions: -------------- --------------
Proceeds from sale of shares:
Class A (8,448,618 and 10,454,280
shares, respectively) ......... 71,291,872 89,257,617
Class Y (152,715 and 575,709
shares, respectively) ......... 1,278,187 5,007,444
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (27,174,275 and
8,400,456 shares, respectively) 203,701,303 68,790,612
Class Y (97,643 and 16,225
shares, respectively) ......... 732,589 133,455
Payments for shares redeemed:
Class A (20,669,570 and 15,014,137
shares, respectively) ......... (173,059,732) (128,046,129)
Class Y (146,263 and 315,972
shares, respectively) ......... (1,191,502) (2,748,347)
-------------- --------------
Net increase in net assets
resulting from capital
share transactions ............ 102,752,717 32,394,652
-------------- --------------
Total increase ................ 187,440,582 8,453,394
Net Assets
Beginning of period ............... 1,295,168,954 1,286,715,560
-------------- --------------
End of period, including undistributed
net investment income of $6,453,555
and $3,979,782, respectively ..... $1,482,609,536 $1,295,168,954
============== ==============
*See "Financial Highlights" on pages 13 - 14.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net asset value,
beginning of period $8.77 $8.97 $7.73 $7.10 $6.03
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.07 0.03 0.07 .00 .04
Net realized and
unrealized gain
(loss) on
investments ..... 1.69 0.26 1.82 .83 1.07
----- ----- ----- ----- -----
Total from investment
operations ....... 1.76 0.29 1.89 .83 1.11
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.06) (0.04) (0.03) (0.02) (0.04)
From capital gains (1.36) (0.45) (0.62) (0.18) (0.00)
----- ----- ----- ----- -----
Total distributions (1.42) (0.49) (0.65) (0.20) (0.04)
----- ----- ----- ----- -----
Net asset value,
end of period .... $9.11 $8.77 $8.97 $7.73 $7.10
===== ===== ===== ===== =====
Total return* ...... 23.60% 3.59% 26.82% 11.86% 18.38%
Net assets, end of
period (000
omitted) ......... $1,477,348$1,291,017$1,284,951$1,014,263 $921,816
Ratio of expenses
to average net
assets ........... 1.09% 1.09% 1.05% 1.05% 0.97%
Ratio of net
investment income
to average net
assets ........... 0.86% 0.36% 0.87% 0.04% 0.50%
Portfolio
turnover rate .... 139.14% 57.10% 30.01% 36.70% 62.12%
Average commission
rate paid ........ $0.0675$0.0347
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal year ended period
September 30, from 9/8/95*
------------------------- through
1997 1996 9/30/95
-------- -------- --------
Net asset value,
beginning of period $8.78 $8.97 $9.05
----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.09 0.07 0.00
Net realized and
unrealized gain
(loss) on
investments...... 1.69 0.24 (0.08)
----- ----- -----
Total from investment
operations ........ 1.78 0.31 (0.08)
----- ----- -----
Less distributions:
From net investment
income........... (0.08) (0.05) (0.00)
From capital gains (1.36) (0.45) (0.00)
----- ----- -----
Total distributions. (1.44) (0.50) (0.00)
----- ----- -----
Net asset value,
end of period ..... $9.12 $8.78 $8.97
===== ===== =====
Total return ....... 23.87% 3.80% -0.88%
Net assets, end of
period (000
omitted) ......... $5,262 $4,152 $1,765
Ratio of expenses
to average net
assets ............ 0.90% 0.91% 0.00%
Ratio of net
investment income
to average net
assets ............ 1.05% 0.69% 0.00%
Portfolio
turnover rate ..... 139.14% 57.10% 30.01%**
Average commission
rate paid ......... $0.0675 $0.0347
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 -- Significant Accounting Policies
United Vanguard 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 appreciation through a diversified holding of
securities issued primarily by companies that the Fund's investment manager
believes have appreciation possibilities and through proper timing of purchases
and sales of 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. 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. Dividend income is recorded on the ex-dividend
date. Interest income is recorded on the accrual basis. See Note 3 --
Investment Security 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, 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 September 30, 1997, $104,883 was reclassified between accumulated
undistributed net investment income and accumulated net realized gain on
investment transactions.
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 $18.0 billion of
combined net assets at September 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
$2,397,522, out of which W&R paid sales commissions of $1,350,521 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 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 $51,533, 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 Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $1,702,628,565 while proceeds from maturities and
sales aggregated $1,562,003,900. Purchases of short-term securities aggregated
$3,139,228,811 while proceeds from maturities and sales aggregated
$3,394,928,011.
For Federal income tax purposes, cost of investments owned at September 30,
1997 was $1,224,499,988, resulting in net unrealized appreciation of
$248,376,853, of which $267,461,078 related to appreciated securities and
$19,084,225 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $332,498,917 during its fiscal year ended September 30, 1997, of which a
portion was paid to shareholders during the period ended September 30, 1997.
Remaining net capital gains will be distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
On August 15, 1995, 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 Statement of Additional
Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each Class of shares based on the value of
relative net assets as of the beginning of the day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Vanguard Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Vanguard Fund, Inc. (the "Fund") as of
September 30, 1997, 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 periods in the four-year period ended September 30, 1996 were
audited by other auditors whose report, dated November 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
September 30, 1997 by correspondence with the custodian. 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 United Vanguard
Fund, Inc. as of September 30, 1997, 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
October 31, 1997
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains 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 Federal income tax return for the years in which
they were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
-----------------------------------------------
For Individuals For Corporations
----------------- -----------------------------
Record Ordinary Long-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
- --------- ----- ---------------------------------------------------
Class A
12-13-96 $1.400 $0.1599 $1.2401 $0.0364 $0.1235 $1.2401
06-13-97 0.020 0.0200 0.0000 0.0179 0.0021 0.0000
------- ------- ------- ------- ------- -------
Total $1.420 $0.1799 $1.2401 $0.0543 $0.1256 $1.2401
======= ======= ======= ======= ======= =======
Class Y
12-13-96 $1.411 $0.1709 $1.2401 $0.0464 $0.1245 $1.2401
06-13-97 0.028 0.0280 0.0000 0.0251 0.0029 0.0000
------- ------- ------- ------- ------- -------
Total $1.439 $0.1989 $1.2401 $0.0715 $0.1274 $1.2401
======= ======= ======= ======= ======= =======
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.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of United Vanguard Fund, Inc. was held on
July 29, 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 WithheldNon-Votes*
Henry L. Bellmon 83,661,811 2,436,272 0
Dodds I. Buchanan 83,903,507 2,194,576 0
James M. Concannon 83,917,647 2,180,436 0
John A. Dillingham 83,895,303 2,202,780 0
Linda Graves 83,852,119 2,245,964 0
John F. Hayes 83,693,482 2,404,601 0
Glendon E. Johnson 83,737,174 2,360,909 0
William T. Morgan 83,876,360 2,221,723 0
Ronald K. Richey 83,825,320 2,272,763 0
William L. Rogers 83,849,065 2,249,018 0
Frank J. Ross, Jr. 83,887,721 2,210,362 0
Eleanor B. Schwartz 83,856,187 2,241,896 0
Keith A. Tucker 83,882,459 2,215,624 0
Frederick Vogel III 83,943,232 2,154,851 0
Paul S. Wise 83,776,257 2,321,826 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 AbstainNon-Votes*
80,969,588 869,440 4,259,055 0
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 Elimination of Fundamental Restrictions Regarding Restricted
Securities
Broker
For Against AbstainNon-Votes*
76,415,714 2,716,337 6,866,409 99,623
3.2 Modification of Fundamental Restriction Regarding Diversification
of Assets
Broker
For Against AbstainNon-Votes*
76,399,575 2,731,299 6,867,586 99,623
3.3 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against AbstainNon-Votes*
76,269,214 2,866,583 6,862,663 99,623
3.4 Elimination of Fundamental Restrictions Regarding Mortgaging or
Pledging Securities
Broker
For Against AbstainNon-Votes*
76,304,119 2,825,352 6,868,989 99,623
3.5 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
76,307,433 2,828,364 6,862,663 99,623
3.6 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
76,372,003 2,763,794 6,862,663 99,623
3.7 Elimination of Fundamental Restriction Regarding Investment in
Warrants and Rights
Broker
For Against AbstainNon-Votes*
76,399,349 2,736,448 6,862,663 99,623
3.8 Elimination of Fundamental Restrictions Regarding Purchasing Call
Options
Broker
For Against AbstainNon-Votes*
76,343,877 2,791,387 6,863,196 99,623
3.9 Elimination of Fundamental Restrictions Regarding Arbitrage
Transactions
Broker
For Against AbstainNon-Votes*
76,368,064 2,767,733 6,862,663 99,623
3.10 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against AbstainNon-Votes*
76,376,470 2,759,327 6,862,663 99,623
3.11 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
76,422,662 2,710,980 6,864,818 99,623
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 AbstainNon-Votes*
73,596,575 3,412,045 8,475,414 25,371
*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>
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
Daniel P. Becker, Vice President
Robert L. Hechler, Vice President
Henry J. Herrmann, 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 Vanguard Fund, Inc. It is not authorized for distribution to prospective
investors in the Fund unless accompanied with or preceded by the United Vanguard
Fund, Inc. current prospectus.
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.
<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
NUR1005A(9-97)
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