United
Vanguard
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 1998<PAGE>
MANAGER'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1998
Dear Shareholder:
This report relates to the operation of United Vanguard Fund, Inc. for the
fiscal year ended September 30, 1998. The discussion, graphs and tables
contained in this report will provide you with information regarding the Fund's
performance during that period.
The past fiscal year was an extremely volatile period for the global capital
markets. We are all by now familiar with the financial crisis in Asia which has
slowly spread to the developed world, but it is important to acknowledge that
Asia was the first major symptom of a larger problem and not necessarily the
problem itself. In the early 1990s, many developed nations rushed to establish
manufacturing bases in the Far East and capital flowed from corporations and
international mutual funds. Asian governments poured in more money to build
industrial and economic infrastructure. Eventually, there was so much capacity
created by this infusion of capital that the cash flow generated by the assets
was not adequate to repay investors. These events were to foreshadow similar
problems all over the world. Once providers of capital experienced problems,
they quickly withdrew funds from these economies causing massive currency
devaluation and the economic problems now facing much of the world.
We began to position the Fund for the occurrence of these types of problems
early in the fiscal year. Exposure to credit-sensitive companies, like banks,
was greatly reduced and industrial cyclical stocks were eliminated from the
Fund's portfolio. In their place, we purchased interest-sensitive non-bank
financial stocks and increased our exposure to consumer staples and consumer
cyclical companies, such as retailers. Our overall strategy and investment
philosophy has remained constant. We believe the best way to provide long-term
returns is to invest in what we believe are the best businesses run by the best
management. We continue to search for companies that we believe possess a
sustainable competitive advantage which can result in long-term, highly
profitable growth.
The indexes shown in the chart on the following page reflect the performance of
securities that generally represent the stock market (the S&P 500 Index) and the
universe of funds with similar investment objectives (the Lipper Growth Fund
Universe Average). The strategies and techniques we applied resulted in the
Fund's performance falling below that of the S&P 500 Index and above the Lipper
Average.
Going forward, we expect global economies to continue to slow. We expect
interest rates to fall dramatically and have positioned the Fund's portfolio
accordingly. We intend to continue emphasizing retailers, mortgage-related
financial companies, select drug stocks and the tobacco industry. Our portfolio
strategy consists of an attempt to manage risks in down markets through holdings
of defensive stocks while participating in the potential long-term growth of
solid companies currently in the Fund's portfolio.
We appreciate your continued confidence.
Respectfully,
Daniel P. Becker
Manager, United Vanguard Fund, Inc.
<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
------------------ ----------
09/30/88 $ 9,425 $10,000 $10,000
09/30/89 11,658 13,301 12,847
09/30/90 10,181 12,072 11,127
09/30/91 13,325 15,834 14,955
09/30/92 13,247 17,585 16,071
09/30/93 15,681 19,871 19,002
09/30/94 17,541 20,603 19,256
09/30/95 22,245 26,731 24,523
09/30/96 23,044 32,167 28,423
09/30/97 28,484 45,192 37,797
09/30/98 29,556 49,306 37,173
==== United Vanguard Fund, Class A* -- $29,556
++++ Standard & Poor's 500 Composite Stock Index -- $49,306
---- Lipper Growth Fund Universe Average -- $37,173
*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
9/30/98 -2.20% 4.02%
5 Years Ended
9/30/98 12.18% N/A
10 Years Ended
9/30/98 11.45% N/A
Life of Class Y +++ N/A 9.64%
+ 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 9/30/98.
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.
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)
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 1998
- --------------------------------------------
DIVIDENDS PAID $0.04
=====
CAPITAL GAINS DISTRIBUTION $1.77
=====
NET ASSET VALUE ON
9/30/98 $7.50 adjusted to:$9.27 (A)
9/30/97 9.11
-----
CHANGE PER SHARE $0.16
=====
(A)This number includes the capital gains distribution of $1.77 paid in December
1997 added to the actual net asset value on September 30, 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 9-30-98 -2.20% 3.76%
5-year period ended 9-30-98 12.18% 13.51%
10-year period ended 9-30-98 11.45% 12.11%
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, 1998, United Vanguard Fund, Inc. had net assets totaling
$1,431,098,114 invested in a diversified portfolio of:
87.28% Common Stocks
12.57% Cash and Cash Equivalents
0.15% Corporate Debt Security
As a shareholder of United Vanguard Fund, Inc., for every $100 you had invested
on September 30, 1998, your Fund owned:
$42.23 Manufacturing Stocks
15.83 Finance, Insurance and Real Estate Stocks
14.58 Wholesale and Retail Trade Stocks
12.57 Cash and Cash Equivalents
10.40 Services Stocks
4.24 Transportation, Communication, Electric
and Sanitary Services Stocks
0.15 Corporate Debt Security
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 4.62%
Abercrombie & Fitch Co., Class A* ...... 828,700 $ 36,462,800
Kohl's Corporation* .................... 760,000 29,640,000
Total ................................. 66,102,800
Building Materials and Garden Supplies - 3.31%
Home Depot, Inc. (The) ................. 1,200,000 47,400,000
Business Services - 6.67%
BMC Software, Inc.* .................... 617,200 37,051,287
Microsoft Corporation* ................. 530,000 58,349,687
Total ................................. 95,400,974
Chemicals and Allied Products - 17.01%
Bristol-Myers Squibb Company ........... 395,700 41,103,338
Colgate-Palmolive Company .............. 440,000 30,140,000
Lilly (Eli) and Company ................ 277,700 21,747,381
Monsanto Company ....................... 400,000 22,550,000
Pfizer Inc. ............................ 316,600 33,539,812
Schering-Plough Corporation ............ 482,800 49,999,975
Warner-Lambert Company ................. 588,300 44,416,650
Total ................................. 243,497,156
Communication - 0.83%
Clear Channel Communications, Inc.* .... 250,500 11,898,750
Depository Institutions - 3.09%
Comerica Incorporated .................. 460,000 25,213,750
MBNA Corp. ............................. 662,700 18,969,788
Total ................................. 44,183,538
Electronic and Other Electric Equipment - 3.73%
Intel Corporation ...................... 445,100 38,181,234
Texas Instruments Incorporated ......... 287,200 15,149,800
Total ................................. 53,331,034
Furniture and Home Furnishings Stores - 0.42%
Williams-Sonoma, Inc.* ................. 284,900 6,071,931
General Merchandise Stores - 2.95%
Dollar General Corporation ............. 693,906 18,475,247
Wal-Mart Stores, Inc. .................. 434,700 23,745,488
Total ................................. 42,220,735
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Health Services - 2.89%
Health Management Associates, Inc.,
Class A* .............................. 1,476,050 $ 26,937,913
Tenet Healthcare Corporation* .......... 500,000 14,375,000
Total ................................. 41,312,913
Hotels and Other Lodging Places - 0.03%
Sun International Hotels, Ltd.* ........ 10,000 379,375
Industrial Machinery and Equipment - 9.93%
Applied Materials, Inc.* ............... 390,100 9,862,216
Cisco Systems, Inc.* ................... 643,200 39,777,900
EMC Corporation* ....................... 1,615,900 92,409,281
Total ................................. 142,049,397
Instruments and Related Products - 2.89%
Guidant Corporation .................... 307,500 22,831,875
Medtronic, Inc. ........................ 318,500 18,433,187
United States Surgical Corporation ..... 634 26,430
Total ................................. 41,291,492
Insurance Carriers - 2.53%
American International Group, Inc. ..... 287,250 22,118,250
MGIC Investment Corporation ............ 382,400 14,101,000
Total ................................. 36,219,250
Miscellaneous Retail - 1.91%
Costco Companies, Inc.* ................ 70,000 3,316,250
Walgreen Co. ........................... 545,300 24,027,281
Total ................................. 27,343,531
Motion Pictures - 0.81%
Time Warner Incorporated ............... 133,200 11,663,325
Nondepository Institutions - 10.21%
Capital One Financial Corp. ............ 281,900 29,176,650
Fannie Mae ............................. 1,132,700 72,775,975
Freddie Mac ............................ 893,800 44,187,238
Total ................................. 146,139,863
Printing and Publishing - 0.93%
Tribune Company ........................ 263,200 13,242,250
Tobacco Products - 5.05%
Philip Morris Companies Inc. ........... 1,570,000 72,318,125
Transportation Equipment - 2.69%
Harley-Davidson, Inc. .................. 1,310,000 38,481,250
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1998
Shares Value
COMMON STOCKS (Continued)
Transportation Services - 0.54%
Dial Corporation (The) ................. 378,000 $ 7,796,250
Water Transportation - 2.87%
Carnival Corporation, Class A .......... 1,293,400 41,146,288
Wholesale Trade - Durable Goods - 1.37%
Johnson & Johnson ...................... 250,000 19,562,500
TOTAL COMMON STOCKS - 87.28% $1,249,052,727
(Cost: $967,857,672)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITY - 0.15%
Health Services
Assisted Living Concepts, Convertible,
6.0%, 11-1-2002 ....................... $2,500 $ 2,225,000
(Cost: $2,500,000)
SHORT-TERM SECURITIES
Commercial Paper
Communication - 1.74%
Bell Atlantic Financial Services, Inc.,
5.3%, 10-14-98 ........................ 25,000 24,952,153
Electric, Gas and Sanitary Services - 2.89%
Carolina Power & Light Co.,
5.46%, 11-9-98 ........................ 21,500 21,372,828
Houston Industries FinanceCo L.P. (Houston
Industries Incorporated, guarantor),
5.67%, 10-30-98 ....................... 20,000 19,908,650
Total ................................. 41,281,478
Fabricated Metal Products - 0.83%
Danaher Corporation,
5.3438%, Master Note .................. 356 356,000
Snap-On Inc.,
5.51%, 10-15-98 ....................... 11,500 11,475,358
Total ................................. 11,831,358
Food and Kindred Products - 1.47%
ConAgra, Inc.,
5.7%, 10-9-98 ......................... 7,000 6,991,133
General Mills, Inc.,
5.1988%, Master Note .................. 77 77,000
Seagram (Joseph E.) & Sons Inc.,
5.4%, 10-15-98 ........................ 14,000 13,970,600
Total ................................. 21,038,733
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Instruments and Related Products - 1.65%
General Signal Corp.,
5.7%, 10-6-98 ......................... $23,660 $ 23,641,269
Insurance Agents, Brokers and Service - 0.93%
Aon Corp.,
5.53%, 10-7-98 ........................ 13,300 13,287,742
Nondepository Institutions - 1.88%
Penney (J.C.) Funding Corp.,
5.5%, 10-23-98 ........................ 23,000 22,922,694
Whirlpool Corp.,
6.0%, 10-1-98 ......................... 3,975 3,975,000
Total ................................. 26,897,694
Textile Mill Products - 0.09%
Sara Lee Corporation,
5.1938%, Master Note .................. 1,302 1,302,000
Tobacco Products - 0.18%
B.A.T. Capital Corp.,
5.6%, 11-5-98 ......................... 2,600 2,585,845
Transportation Equipment - 0.52%
Dana Credit Corp.,
5.68%, 10-14-98 ....................... 7,500 7,484,617
Total Commercial Paper - 12.18% 174,302,889
Commercial Paper (backed by irrevocable bank
letter of credit) - 0.56%
Nondepository Institutions
Hyundai Motor Finance Co. (Bank of America NT & SA),
5.52%, 10-5-98 ........................ 8,000 7,995,093
TOTAL SHORT-TERM SECURITIES - 12.74% $ 182,297,982
(Cost: $182,297,982)
TOTAL INVESTMENT SECURITIES - 100.17% $1,433,575,709
(Cost: $1,152,655,654)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.17%) (2,477,595)
NET ASSETS - 100.00% $1,431,098,114
See Notes to Schedule of Investments on page 9.
<PAGE>
THE INVESTMENTS OF
UNITED VANGUARD FUND, INC.
SEPTEMBER 30, 1998
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
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, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $1,433,576
Cash ............................................ 6
Receivables:
Investment securities sold ...................... 12,619
Dividends and interest .......................... 1,381
Fund shares sold ................................ 428
Prepaid insurance premium ........................ 39
----------
Total assets .................................. 1,448,049
----------
Liabilities
Payable for investment securities purchased ...... 13,608
Payable to Fund shareholders ..................... 2,786
Accrued service fee (Note 2) ..................... 313
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 202
Accrued management fee (Note 2) .................. 27
Accrued accounting services fee (Note 2) ......... 8
Accrued distribution fee (Note 2) ................ 3
Other ............................................ 4
----------
Total liabilities ............................. 16,951
----------
Total net assets ............................. $1,431,098
==========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 190,735
Additional paid-in capital ...................... 937,306
Accumulated undistributed income:
Accumulated undistributed net investment
income ........................................ 1,776
Accumulated undistributed net realized gain on
investment transactions ....................... 20,351
Net unrealized appreciation in value of
investments ................................... 280,930
----------
Net assets applicable to outstanding
units of capital ............................. $1,431,098
==========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.50
Class Y .......................................... $7.52
Capital shares outstanding
Class A .......................................... 190,108
Class Y .......................................... 627
Capital shares authorized .......................... 600,000
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 1998
(In Thousands)
Investment Income
Income (Note 1B):
Dividends ....................................... $13,366
Interest and amortization ....................... 5,153
-------
Total income .................................. 18,519
-------
Expenses (Note 2):
Investment management fee ....................... 10,495
Service fee - Class A ........................... 3,320
Transfer agency and dividend disbursing - Class A 2,395
Accounting services fee ......................... 100
Distribution fee - Class A ...................... 27
Custodian fees .................................. 23
Audit fees ...................................... 19
Legal fees ...................................... 10
Shareholder servicing - Class Y ................. 8
Other ........................................... 202
-------
Total expenses ................................ 16,599
-------
Net investment income ........................ 1,920
-------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 24,654
Realized net gain on foreign currency
transactions .................................... 26
-------
Realized net gain on investments ................ 24,680
Unrealized appreciation in value of investments
during the period ............................... 32,486
-------
Net gain on investments ....................... 57,166
-------
Net increase in net assets resulting
from operations ............................ $59,086
=======
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year
ended September 30,
-----------------------------
1998 1997
Increase (Decrease)in Net Assets -------------- ------------
Operations:
Net investment income ............ $ 1,920 $ 11,726
Realized net gain on investments . 24,680 332,325
Unrealized appreciation (depreciation) 32,486 (52,010)
---------- ----------
Net increase in net assets
resulting from operations ..... 59,086 292,041
---------- ----------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................ (6,595) (9,105)
Class Y ........................ (29) (42)
Realized gains on securities
transactions:
Class A ........................ (284,084) (197,515)
Class Y ........................ (1,024) (690)
---------- ----------
(291,732) (207,352)
Capital share transactions: ---------- ----------
Proceeds from sale of shares:
Class A (40,123,616 and 8,448,618
shares, respectively) ......... 321,631 71,292
Class Y (122,262 and 152,715
shares, respectively) ......... 996 1,278
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (41,192,909 and
27,174,275 shares, respectively) 285,879 203,701
Class Y (151,657 and 97,643
shares, respectively) ......... 1,052 733
Payments for shares redeemed:
Class A (53,303,525 and 20,669,570
shares, respectively) ......... (426,626) (173,060)
Class Y (224,280 and 146,263
shares, respectively) ......... (1,798) (1,192)
---------- ----------
Net increase in net assets
resulting from capital
share transactions .......... 181,134 102,752
---------- ----------
Total increase (decrease) ..... (51,512) 187,441
Net Assets
Beginning of period ............... 1,482,610 1,295,169
---------- ----------
End of period, including undistributed
net investment income of $1,776
and $6,454, respectively ......... $1,431,098 $1,482,610
========== ==========
*See "Financial Highlights" on pages 14 - 15.
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,
------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of period $9.11 $8.77 $8.97 $7.73 $7.10
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.01 0.07 0.03 0.07 0.00
Net realized and
unrealized gain
on investments .. 0.19 1.69 0.26 1.82 0.83
----- ----- ----- ----- -----
Total from investment
operations ....... 0.20 1.76 0.29 1.89 0.83
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.04) (0.06) (0.04) (0.03) (0.02)
From capital gains (1.77) (1.36) (0.45) (0.62) (0.18)
----- ----- ----- ----- -----
Total distributions (1.81) (1.42) (0.49) (0.65) (0.20)
----- ----- ----- ----- -----
Net asset value,
end of period .... $7.50 $9.11 $8.77 $8.97 $7.73
===== ===== ===== ===== =====
Total return* ...... 3.76% 23.60% 3.59% 26.82% 11.86%
Net assets, end of
period (in
millions) ........ $1,426 $1,478 $1,291 $1,285 $1,014
Ratio of expenses
to average net
assets ........... 1.10% 1.09% 1.09% 1.05% 1.05%
Ratio of net
investment income
to average net
assets ........... 0.13% 0.86% 0.36% 0.87% 0.04%
Portfolio
turnover rate .... 90.51%139.14% 57.10% 30.01% 36.70%
*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 period
ended September 30, from 9/8/95*
-------------------- through
1998 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...... 0.19 1.69 0.24 (0.08)
----- ----- ----- -----
Total from investment
operations ........ 0.22 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 ..... $7.52 $9.12 $8.78 $8.97
===== ===== ===== =====
Total return ....... 4.02% 23.87% 3.80% -0.88%
Net assets, end of
period (in
millions) ........ $5 $5 $4 $2
Ratio of expenses
to average
net assets ....... 0.91% 0.90% 0.91% 0.00%
Ratio of net investment
income to average
net assets ........ 0.33% 1.05% 0.69% 0.00%
Portfolio
turnover rate ..... 90.51% 139.14% 57.10% 30.01%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 carryovers. At
September 30, 1998, $26,325 was reclassified between accumulated
undistributed net investment income and accumulated undistributed net
realized gain on investment transactions.
<PAGE>
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 $18.9 billion of
combined net assets at September 30, 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
$2,616,408, out of which W&R paid sales commissions of $1,494,180 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
<PAGE>
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 $52,898, which are included in other
expenses.
W&R is a subsidiary of 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 $1,272,581,034 while proceeds from maturities and
sales aggregated $1,533,587,281. Purchases of short-term securities aggregated
$1,711,846,241 while proceeds from maturities and sales aggregated
$1,551,788,315.
For Federal income tax purposes, cost of investments owned at September 30,
1998 was $1,154,245,771, resulting in net unrealized appreciation of
$279,329,938, of which $293,147,061 related to appreciated securities and
$13,817,123 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $26,175,538 during its fiscal year ended September 30, 1998, of which a
portion was paid to shareholders during the period ended September 30, 1998.
Remaining net capital gains will be distributed to the Fund's shareholders in
fiscal 1999.
NOTE 5 -- Multiclass Operations
On August 15, 1995, the Fund was authorized to offer 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, 1998, and the related statements of operations for the fiscal year
then ended and changes in net assets for each of the fiscal years in the two-
year period then ended, and the financial highlights for each of the fiscal
periods 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
September 30, 1998 by correspondence with the custodian and brokers. 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 September 30, 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
November 6, 1998
<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 Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% Rate Qualifying Qualifying Capital Gain
- ----------- ------------- -------- ------- ---------- ---------- ------------
Class A
12-12-97 $1.807 $0.3128 $0.7859 $0.7083 $0.0336 $0.2792 $1.4942
06-12-98 --- --- --- --- --- --- ---
------ ------- ------- ------- ------- ------- -------
Total $1.807 $0.3128 $0.7859 $0.7083 $0.0336 $0.2792 $1.4942
====== ======= ======= ======= ======= ======= =======
Class Y
12-12-97 $1.815 $0.3208 $0.7859 $0.7083 $0.0402 $0.2806 $1.4942
06-12-98 --- --- --- --- --- --- ---
------ ------- ------- ------- ------- ------- -------
Total $1.815 $0.3208 $0.7859 $0.7083 $0.0402 $0.2806 $1.4942
====== ======= ======= ======= ======= ======= =======
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>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Daniel P. Becker, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
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 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
NUR1005A(9-98)
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