United
Vanguard
Fund, Inc.
SEMIANNUAL
REPORT
---------------------------------------
For the six months ended March 31, 1998
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
MARCH 31, 1998
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 March 31,
1998, mutual fund assets under management totaled more than $22.9 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 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.
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 Six Months Ended March 31, 1998
- ---------------------------------------
DIVIDEND PAID $0.04
=====
CAPITAL GAINS DISTRIBUTION $1.77
=====
NET ASSET VALUE ON
3/31/98 $7.83 adjusted to:$9.60 (A)
9/30/97 9.11
-----
CHANGE PER SHARE $0.49
=====
(A)This number includes the capital gains distribution of $1.77 paid in December
1997 added to the actual net asset value on March 31, 1998.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 3-31-98 22.99% 30.49%
5-year period ended 3-31-98 15.52% 16.90%
10-year period ended 3-31-98 12.39% 13.06%
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 March 31, 1998, United Vanguard Fund, Inc. had net assets totaling
$1,558,522,223 invested in a diversified portfolio of:
97.67% Common Stocks
1.90% Cash and Cash Equivalents
0.25% Preferred Stock
0.18% Corporate Debt Security
As a shareholder of United Vanguard Fund, Inc., for every $100 you had invested
on March 31, 1998, your Fund owned:
$43.77 Manufacturing Stocks
24.64 Finance, Insurance and Real Estate Stocks
15.30 Wholesale and Retail Trade Stocks
6.83 Services Stocks
6.76 Transportation, Communication, Electric
and Sanitary Services Stocks
1.90 Cash and Cash Equivalents
0.80 Miscellaneous
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 4.65%
Abercrombie & Fitch Co., Class A* ...... 463,000 $ 19,474,706
Kohl's Corporation* .................... 290,000 23,707,500
Payless ShoeSource, Inc.* .............. 390,000 29,347,500
Total ................................. 72,529,706
Building Materials and Garden Supplies - 2.60%
Home Depot, Inc. (The) ................. 600,000 40,462,200
Business Services - 2.52%
BMC Software, Inc.* .................... 238,600 19,990,147
Manpower Inc. .......................... 476,800 19,250,800
Total ................................. 39,240,947
Chemicals and Allied Products - 13.86%
Bristol-Myers Squibb Company ........... 295,700 30,845,058
Colgate-Palmolive Company .............. 440,000 38,115,000
Lilly (Eli) and Company ................ 277,700 16,557,862
Novartis, AG (A) ....................... 9,892 17,508,769
Pfizer Inc. ............................ 271,600 27,074,989
Procter & Gamble Company (The) ......... 175,900 14,841,562
Schering-Plough Corporation ............ 482,800 39,438,484
Warner-Lambert Company ................. 186,100 31,695,063
Total ................................. 216,076,787
Communication - 2.99%
AT&T Corporation ....................... 359,700 23,605,313
Clear Channel Communications, Inc.* .... 235,000 23,030,000
Total ................................. 46,635,313
Depository Institutions - 5.35%
BankAmerica Corporation ................ 414,500 34,248,063
Comerica Incorporated .................. 240,000 25,394,880
MBNA Corp. ............................. 662,700 23,732,612
Total ................................. 83,375,555
Electronic and Other Electric Equipment - 6.91%
Emerson Electric Co. ................... 240,000 15,644,880
General Electric Company ............... 387,300 33,331,813
Intel Corporation ...................... 249,000 19,429,719
Philips Electronics N.V., NY Shares .... 310,400 22,794,845
Telefonaktiebolaget LM Ericsson,
ADR, Class B .......................... 346,800 16,483,751
Total ................................. 107,685,008
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 5.65%
Coca-Cola Company (The) ................ 250,000 $ 19,359,250
Keebler Foods Company* ................. 110,000 3,300,000
Nabisco Holdings, Class A .............. 329,800 15,459,375
PepsiCo, Inc. .......................... 505,400 21,542,675
Ralston Purina Co. ..................... 144,200 15,294,140
Wm. Wrigley Jr. Company ................ 159,600 13,047,300
Total ................................. 88,002,740
Furniture and Home Furnishings Stores - 0.93%
Williams-Sonoma, Inc.* ................. 251,500 14,555,562
General Merchandise Stores - 2.80%
Dollar General Corporation ............. 555,125 21,476,121
Wal-Mart Stores, Inc. .................. 434,700 22,087,976
Total ................................. 43,564,097
Health Services - 2.74%
Health Management Associates, Inc.,
Class A* .............................. 856,700 24,523,037
Tenet Healthcare Corporation* .......... 500,000 18,156,000
Total ................................. 42,679,037
Holding and Other Investment Offices - 0.37%
LTC Properties, Inc. ................... 300,000 5,793,600
Industrial Machinery and Equipment - 6.19%
Applied Materials, Inc.* ............... 578,600 20,413,587
Cisco Systems, Inc.* ................... 296,800 20,302,901
EMC Corporation* ....................... 1,475,900 55,806,731
Total ................................. 96,523,219
Instruments and Related Products - 2.49%
Guidant Corporation .................... 267,500 19,627,813
Medtronic, Inc. ........................ 368,500 19,115,937
Total ................................. 38,743,750
Insurance Carriers - 7.99%
Allstate Corporation (The) ............. 361,000 33,189,257
American International Group, Inc. ..... 191,500 24,116,935
MBIA Inc. .............................. 400,600 31,021,262
MGIC Investment Corporation ............ 550,000 36,127,850
Total ................................. 124,455,304
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Miscellaneous Retail - 1.23%
Walgreen Co. ........................... 545,300$ 19,187,471
Motion Pictures - 1.57%
Walt Disney Company (The) .............. 230,000 24,552,500
Nondepository Institutions - 9.81%
Capital One Financial Corp. ............ 71,400 5,631,675
Fannie Mae ............................. 1,247,600 78,910,700
Franchise Mortgage Acceptance Company LLC* 380,000 9,476,060
Freddie Mac ............................ 600,000 28,462,200
SLM Holding Corporation ................ 697,900 30,445,888
Total ................................. 152,926,523
Petroleum and Coal Products - 1.05%
Royal Dutch Petroleum Company .......... 288,300 16,378,900
Printing and Publishing - 2.78%
Gannett Co., Inc. ...................... 344,800 24,782,500
Tribune Company ........................ 263,200 18,555,600
Total ................................. 43,338,100
Security and Commodity Brokers - 1.49%
Franklin Resources, Inc. ............... 437,300 23,176,900
Tobacco Products - 2.43%
Philip Morris Companies Inc. ........... 907,700 37,839,290
Transportation Equipment - 2.41%
Harley-Davidson, Inc. .................. 1,140,000 37,620,000
Transportation Services - 0.58%
Dial Corporation (The) ................. 378,000 9,048,186
Water Transportation - 3.19%
Carnival Corporation, Class A .......... 559,700 39,039,075
Royal Caribbean Cruises Ltd. ........... 152,000 10,649,424
Total ................................. 49,688,499
Wholesale Trade - Durable Goods - 1.62%
Johnson & Johnson ...................... 250,000 18,328,000
Sybron International Corporation* ...... 265,600 6,938,800
Total ................................. 25,266,800
Wholesale Trade - Nondurable Goods - 1.47%
Unilever N.V., NY Shares ............... 333,600 22,872,283
TOTAL COMMON STOCKS - 97.67% $1,522,218,277
(Cost: $1,170,481,166)
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
MARCH 31, 1998
Shares Value
PREFERRED STOCK - 0.25%
Holding and Other Investment Offices
LTC Properties, Inc., 9.5% ............. 150,000 $ 3,862,500
(Cost: $3,926,300)
Principal
Amount in
CORPORATE DEBT SECURITY - 0.18% Thousands
Health Services
Assisted Living Concepts, Convertible,
6.0%, 11-1-2002 ....................... $2,500 $ 2,834,375
(Cost: $2,500,000)
TOTAL SHORT-TERM SECURITIES - 1.93% $ 30,011,326
(Cost: $30,011,326)
TOTAL INVESTMENT SECURITIES - 100.03% $1,558,926,478
(Cost: $1,206,918,792)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%) (404,255)
NET ASSETS - 100.00% $1,558,522,223
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
MARCH 31, 1998
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $1,558,926,478
Cash ............................................ 6,763
Receivables:
Investment securities sold ...................... 3,627,757
Fund shares sold ................................ 2,459,955
Dividends and interest .......................... 2,244,600
Prepaid insurance premium ........................ 33,574
--------------
Total assets .................................. 1,567,299,127
--------------
Liabilities
Payable to Fund shareholders ..................... 4,897,273
Payable for investment securities purchased ...... 3,306,000
Accrued service fee (Note 2) ..................... 345,098
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 185,008
Accrued management fee (Note 2) .................. 29,560
Accrued accounting services fee (Note 2) ......... 8,333
Other ............................................ 5,632
--------------
Total liabilities ............................. 8,776,904
--------------
Total net assets ............................. $1,558,522,223
==============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 199,048,402
Additional paid-in capital ...................... 995,936,280
Accumulated undistributed income:
Accumulated undistributed net investment
income ........................................ 2,587,515
Accumulated undistributed net realized gain on
investment transactions ....................... 8,956,011
Net unrealized appreciation in value of
investments ................................... 351,994,015
--------------
Net assets applicable to outstanding
units of capital ............................. $1,558,522,223
==============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.83
Class Y .......................................... $7.83
Capital shares outstanding
Class A .......................................... 198,356,609
Class Y .......................................... 691,793
Capital shares authorized .......................... 600,000,000
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended MARCH 31, 1998
Investment Income
Income (Note 1B):
Dividends ....................................... $ 7,635,813
Interest and amortization ....................... 2,970,908
------------
Total income .................................. 10,606,721
------------
Expenses (Note 2):
Investment management fee ....................... 5,076,984
Service fee - Class A ........................... 1,306,420
Transfer agency and dividend disbursing - Class A 1,223,340
Accounting services fee ......................... 50,000
Custodian fees .................................. 21,786
Audit fees ...................................... 11,580
Legal fees ...................................... 6,547
Shareholder servicing - Class Y ................. 3,752
Other ........................................... 121,024
------------
Total expenses ................................ 7,821,433
------------
Net investment income ........................ 2,785,288
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 1 and 3)
Realized net gain on securities .................. 13,256,239
Realized net loss on foreign currency
transactions .................................... (27,563)
------------
Realized net gain on investments ................ 13,228,676
Unrealized appreciation in value of investments
during the period ............................... 103,549,349
------------
Net gain on investments ....................... 116,778,025
------------
Net increase in net assets resulting
from operations ............................ $119,563,313
============
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the six For the fiscal
months ended year ended
March 31, September 30,
1998 1997
Increase in Net Assets ------------ ------------
Operations:
Net investment income ............ $ 2,785,288 $ 11,726,108
Realized net gain on investments . 13,228,676 332,324,733
Unrealized appreciation (depreciation)103,549,349 (52,010,329)
-------------- --------------
Net increase in net assets
resulting from operations ..... 119,563,313 292,040,512
-------------- --------------
Distributions to shareholders (Note 1E):*
From net investment income
Class A ........................ (6,595,350) (9,105,155)
Class Y ........................ (28,415) (42,297)
From realized gains on securities
transactions
Class A ........................ (284,080,868) (197,514,902)
Class Y ........................ (1,024,085) (690,293)
-------------- --------------
(291,728,718) (207,352,647)
Capital share transactions: -------------- --------------
Proceeds from sale of shares:
Class A (9,716,389 and 8,448,618
shares, respectively) ......... 75,611,454 71,291,872
Class Y (40,865 and 152,715
shares, respectively) ......... 325,355 1,278,187
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (41,193,069 and
27,174,275 shares, respectively) 285,879,786 203,701,303
Class Y (151,657 and 97,643
shares, respectively) ......... 1,052,500 732,589
Payments for shares redeemed:
Class A (14,647,818 and 20,669,570
shares, respectively) ......... (114,191,204) (173,059,732)
Class Y (77,678 and 146,263
shares, respectively) ......... (599,799) (1,191,502)
-------------- --------------
Net increase in net assets
resulting from capital
share transactions .......... 248,078,092 102,752,717
-------------- --------------
Total increase ................ 75,912,687 187,440,582
Net Assets
Beginning of period ............... 1,482,609,536 1,295,168,954
-------------- --------------
End of period, including undistributed
net investment income of $2,587,515
and $6,453,555, respectively ..... $1,558,522,223 $1,482,609,536
============== ==============
*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
six For the fiscal year ended
months September 30,
ended ------------------------------------
3/31/98 1997 1996 1995 1994 1993
------- ------ ------ ------ ------ ------
Net asset value,
beginning of period $9.11 $8.77 $8.97 $7.73 $7.10 $6.03
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.02 0.07 0.03 0.07 .00 .04
Net realized and
unrealized gain
on investments .. 0.51 1.69 0.26 1.82 .83 1.07
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.53 1.76 0.29 1.89 .83 1.11
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.04) (0.06) (0.04) (0.03) (0.02) (0.04)
From capital gains (1.77) (1.36) (0.45) (0.62) (0.18) (0.00)
----- ----- ----- ----- ----- -----
Total distributions (1.81) (1.42) (0.49) (0.65) (0.20) (0.04)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $8.33 $9.11 $8.77 $8.97 $7.73 $7.10
===== ===== ===== ===== ===== =====
Total return* ...... 30.49% 23.60% 3.59% 26.82% 11.86% 18.38%
Net assets, end of
period (000
omitted) .........$1,553,103$1,477,348$1,291,017$1,284,951$1,014,263
$921,816
Ratio of expenses
to average net
assets ........... 1.07%** 1.09% 1.09% 1.05% 1.05% 0.97%
Ratio of net
investment income
to average net
assets ........... 0.38%** 0.86% 0.36% 0.87% 0.04% 0.50%
Portfolio
turnover rate .... 59.53% 139.14% 57.10% 30.01% 36.70% 62.12%
Average commission
rate paid ........ $0.0588 $0.0675$0.0347
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
*Annualized.
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 the fiscal For the
six year ended period
months September 30, from 9/8/95*
ended ------------- through
3/31/98 1997 1996 9/30/95
------- ----- ------ --------
Net asset value,
beginning of period $9.12 $8.78 $8.97 $9.05
----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.03 0.09 0.07 0.00
Net realized and
unrealized gain
(loss) on
investments...... 0.50 1.69 0.24 (0.08)
----- ----- ----- -----
Total from investment
operations ........ 0.53 1.78 0.31 (0.08)
----- ----- ----- -----
Less distributions:
From net investment
income........... (0.05) (0.08) (0.05) (0.00)
From capital gains (1.77) (1.36) (0.45) (0.00)
----- ----- ----- -----
Total distributions. (1.82) (1.44) (0.50) (0.00)
----- ----- ----- -----
Net asset value,
end of period ..... $8.31 $9.12 $8.78 $8.97
===== ===== ===== =====
Total return ....... 30.73% 23.87% 3.80% -0.88%
Net assets, end of
period (000
omitted) ......... $5,419 $5,262 $4,152 $1,765
Ratio of expenses
to average
net assets ....... 0.94%** 0.90% 0.91% 0.00%
Ratio of net investment
income to average
net assets ........ 0.51%** 1.05% 0.69% 0.00%
Portfolio
turnover rate ..... 59.53% 139.14% 57.10% 30.01%**
Average commission
rate paid ......... $0.0588 $0.0675$0.0347
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 the Nasdaq Stock Market, which provides information on bid and
asked 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.
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 $19.8 billion of
combined net assets at March 31, 1998) 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
$1,399,463, out of which W&R paid sales commissions of $800,055 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 $26,358, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $822,307,249 while proceeds from maturities and
sales aggregated $865,512,793. Purchases of short-term securities aggregated
$857,402,098 while proceeds from maturities and sales aggregated $847,597,229.
For Federal income tax purposes, cost of investments owned at March 31,
1998 was $1,206,988,092, resulting in net unrealized appreciation of
$351,938,386, of which $356,406,157 related to appreciated securities and
$4,467,771 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, which has been
distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
On August 15, 1995, the Fund was authorized to offer investors 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
March 31, 1998, and 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 September 30, 1997, and the financial highlights for the six-
month period then ended and for each of the years in the five-year period ended
September 30, 1997. The financial statements and the financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on the 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 March
31, 1998 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 Vanguard
Fund, Inc. as of March 31, 1998, 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
May 8, 1998
<PAGE>
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
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
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United 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
NUR1005SA(3-98)
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