Waddell & Reed Advisors
Vanguard
Fund, Inc.
ANNUAL
REPORT
--------------------------------------------
For the fiscal year ended September 30, 2000
<PAGE>
CONTENTS
3 Manager's Letter
6 Performance Summary
8 Portfolio Highlights
9 Investments
11 Statement of Assets and Liabilities
12 Statement of Operations
13 Statement of Changes in Net Assets
14 Financial Highlights
18 Notes to Financial statements
24 Independent Auditors' Report
25 Income Tax Information
26 Directors & Officers
This report is submitted for the general information of the
shareholders of Waddell & Reed Advisors Vanguard Fund, Inc. It is not
authorized for distribution to prospective investors in the Fund
unless accompanied with or preceded by the Waddell & Reed Advisors
Vanguard Fund, Inc. current prospectus and current Fund performance
information.
<PAGE>
MANAGER'S LETTER OF VANGUARD FUND
-----------------------------------------------------------------
SEPTEMBER 30, 2000
Dear Shareholder:
This report relates to the operation of Waddell & Reed Advisors
Vanguard Fund, Inc. for the fiscal year ended September 30, 2000. The
following discussion, graphs and tables provide you with information
regarding the Fund's performance during that period.
The large cap growth market continues to be characterized by much
uncertainty, admittedly more than we were expecting at this point. We
have definitely seen the inflection point in economic growth that we
had been expecting earlier in the year. While we were expecting a
slowdown to a more sustainable rate of growth, the speed at which the
economy seems to be decelerating is starting to generate concern. The
faster the economy slows, we believe the harder it will become to
generate suitable earnings growth rates for most companies. Nine
years into an economic expansion, we believe it is becoming virtually
impossible to increase profitability levels through cost reduction
efforts. Simply put, it seems that superior stock performance is now
principally a function of sales growth. Going forward in a slowing
economy, we believe achieving this performance will be unusually
difficult. In fact, many companies are already reporting profit
compression problems, which are in turn affecting stock prices. If
slow sales growth rates aren't enough to worry about, energy and
currency prices are now exacerbating an already difficult environment.
Since 1998, the Fund has maintained an outsized position in technology
stocks. This sector's superior growth and profitability prospects
have resulted in outstanding performance recently. Going forward with
the economy slowing, we believe that technology companies, which are
very cyclical, should have similar problems to those reported
throughout the rest of the market. Given this scenario, we have
partially reallocated our technology companies in favor of those
companies less exposed to economic growth. Industries such as
semiconductors have been de-emphasized, but still are represented in
the portfolio. Storage systems, through our exposure to EMC, will
likely continue to be heavily emphasized. We are still very positive
about the outlook for most tech companies, as their sales growth
rates, relative to the rest of the economy, may accelerate in the
future. Pharmaceutical companies, as well as other health care
stocks, also carry a large weight in the portfolio relative to the
recent past.
The strategies and techniques employed during the fiscal year resulted
in the Fund significantly outperforming the indices charted on the
following page. Waddell & Reed Advisors Vanguard Fund returned 42.23
percent for the fiscal year, compared with the Lipper Large-Cap Growth
Funds Universe Average annual return of 30.33 percent (which reflects
the performance of the universe of funds with similar investment
objectives), and the S&P 500 annual return of 13.25 percent (which
reflects the performance of securities that generally represent the
stock market). The Lipper category assigned to the Fund has changed
from last year's report. This change is a result of Lipper's new fund
classification system.
We expect more uncertainty in the future and possibly even elevated
levels of stock market volatility late into the year. However, our
efforts to find large cap companies that possess sustainable
competitive advantages continue regardless of short-term market
movements. Our major holdings currently include EMC, Oracle, Harley
Davidson, Pfizer, Siebel Systems and Fannie Mae. Currency values
globally have shown more turmoil recently, as energy prices continue
to rise, which should continue to put pressure on earnings for many
companies.
In closing, I would like to thank you for your investment, your
continued confidence and your support of Waddell & Reed Advisors
Vanguard Fund.
Sincerely,
Daniel P. Becker
Manager, Waddell & Reed Advisors Vanguard Fund, Inc.
<PAGE>
Comparison of Change in Value of $10,000 Investment
==== Waddell & Reed Advisors Vanguard Fund, Inc., Class A Shares* --
$56,459
++++ Standard & Poor's 500 Composite Stock Index -- $59,115
---- Lipper Growth Fund Universe Average -- $67,652
Lipper
Large-
Waddell Cap
& Reed Standard Growth
Vanguard& Poor's Funds
Fund, 500 Universe
Inc. Index Average
------------------ ----------
09/30/90 $ 9,425 $10,000 $10,000
09/30/91 12,336 13,117 13,878
09/30/92 12,264 14,567 14,888
09/30/93 14,517 16,460 17,477
09/30/94 16,239 17,067 17,562
09/30/95 20,594 22,144 22,619
09/30/96 21,334 26,646 26,377
09/30/97 26,369 37,436 34,989
09/30/98 27,362 40,844 37,449
09/30/99 37,414 52,202 51,674
09/30/00 56,459 59,115 67,652
*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.
Average Annual Total Return+
Class A Class B Class C Class Y
----------------------------------------------
Year Ended
9-30-00 42.23% --- --- 51.21%
5 Years Ended
9-30-00 20.91% --- --- 22.60%
10 Years Ended
9-30-00 18.90% --- --- ---
Since inception of
Class++ through
9-30-00 --- 39.64% 43.64% 22.06%
+Performance data quoted represents past performance and is based on
deduction of the maximum applicable sales load for each of the
periods. Class A shares carry a maximum front-end sales load of
5.75%. Class B and Class C shares carry maximum contingent deferred
sales charges of 5% and 1%, respectively. Total returns reflect
share price appreciation, including reinvestment of all income and
capital gains distributions. Investment return and principal value
will fluctuate and an investor's shares, when redeemed, may be worth
more or less than their original cost.
++10-4-99 for Class B shares and Class C shares and 9-8-95 for Class Y
shares (the date on which shares were first acquired by
shareholders).
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
Waddell & Reed Advisors Vanguard Fund, Inc.
PORTFOLIO STRATEGY:
Common stock of companies GOAL: To seek the appreciation of
thought to have superior capital.
prospects for growth and/or
other unique investment STRATEGY: Invests primarily in a
characteristics diversified portfolio of
common stocks issued by large
to medium sized U.S. and
foreign companies believed to
have appreciation
possibilities. Invests
typically in growth stocks,
but also invests in value
stocks to provide a blend of
value and growth potential.
Value stocks are those
currently selling below their
true worth while growth stocks
are those whose earnings are
likely to grow faster than the
economy.
FOUNDED: 1969
SCHEDULED DIVIDEND FREQUENCY: SEMIANNUALLY (June and
December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended September 30, 2000
--------------------------------------------
CAPITAL GAINS DISTRIBUTION $ 0.87
=====
NET ASSET VALUE ON
3-31-00 $14.17 adjusted to: $15.04(A)
9-30-99 10.11
------
CHANGE PER SHARE $ 4.93
======
(A)This number includes the capital gains distribution of $0.87 paid
in December 1999 added to the actual net asset value on September
30, 2000.
Past performance is not necessarily indicative of future results.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1)
Class A Class B
----------------------- -----------------------*
With Without With Without
Period Sales Load(2)Sales Load(3) CDSC(4) CDSC(5)
------ ---------- ---------- ----------- ----------
1-year period
ended 9-30-00 42.23% 50.91% --- ---
5-year period
ended 9-30-00 20.91% 22.35% --- ---
10-year period
ended 9-30-00 18.90% 19.60% --- ---
Cumulative return
since inception
of Class (6) --- --- 39.64% 44.64%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions.
Performance data represents past performance and is no guarantee of
future results. Share price, investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(2)Performance data is based on deduction of 5.75% sales load on the
initial purchase in the periods.
(3)Performance data does not take into account the sales load deducted
on an initial purchase.
(4)Performance data reflects the effect of paying the applicable
contingent deferred sales charge (CDSC) at a maximum of 5.00% upon
redemption at the end of the period.
(5)Performance data does not reflect the effect of paying the
applicable CDSC upon redemption at the end of the period.
(6)10-4-99 for Class B shares (the date on which shares were first
acquired by shareholders).
AVERAGE ANNUAL TOTAL RETURN (1)
Class C Class Y(2)
----------------------- ----------
With Without
Period CDSC (3) CDSC (4)
------ ---------- ----------
1-year period
ended 9-30-00 --- --- 51.21%
5-year period
ended 9-30-00 --- --- 22.60%
10-year period
ended 9-30-00 --- --- ---
Cumulative return
since inception
of Class (5) 43.64% 44.64% ---
Since inception
of Class (5) --- --- 22.06%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions.
Performance data represents past performance and is no guarantee of
future results. Share price, investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(2)Performance data does not include the effect of sales charges, as
Class Y shares are not subject to these charges.
(3)Performance data reflects the effect of paying the applicable
contingent deferred sales charge (CDSC) at a maximum of 1.00% which
declines to zero at the end of the first year after investment.
(4)Performance data does not reflect the effect of paying the
applicable CDSC upon redemption at the end of the period.
(5)10-4-99 for Class C shares and 9-8-95 for Class Y shares (the date
on which shares were first acquired by shareholders).
The recent growth rate and volatility in the stock market has helped
produce short-term returns that may not be typical and may not
continue in the future.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors Vanguard Fund, Inc. had
net assets totaling $3,048,925,240 invested in a diversified portfolio
of:
97.92% Common Stocks
2.08% Cash and Cash Equivalents
As a shareholder of Waddell & Reed Advisors Vanguard Fund, Inc., for
every $100 you had invested on September 30, 2000, your Fund owned:
$59.78 Manufacturing Stocks
20.83 Services Stocks
6.22 Finance, Insurance and Real Estate Stocks
5.73 Wholesale and Retail Trade Stocks
4.42 Mining Stocks
2.08 Cash and Cash Equivalents
0.94 Transportation, Communication, Electric
and Sanitary Services Stocks
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS VANGUARD FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 1.18%
Home Depot, Inc. (The) .................. 676,200 $35,880,863
Business Services - 19.18%
Brocade Communications Systems, Inc.* ... 173,400 40,949,494
CheckFree Holdings Corporation* ......... 802,600 33,633,956
Intuit Inc.* ............................ 261,300 14,902,266
Microsoft Corporation* .................. 1,153,300 69,558,406
Oracle Corporation* ..................... 2,490,000 196,087,500
Rational Software Corporation* .......... 634,100 44,010,503
Siebel Systems, Inc.* ................... 1,407,600 156,639,487
Veritas Software Corp.* ................. 205,000 29,154,844
Total ................................. 584,936,456
Chemicals and Allied Products - 18.51%
Forest Laboratories, Inc.* .............. 995,900 114,217,281
Johnson & Johnson ....................... 200,000 18,787,500
Pfizer Inc. ............................. 4,525,325 203,356,792
Pharmacia Corporation ................... 869,400 52,327,013
Schering-Plough Corporation ............. 1,765,600 82,100,400
Smith International, Inc.* .............. 1,146,300 93,495,094
Total ................................. 564,284,080
Communication - 0.94%
Nextel Communications, Inc.* ............ 611,100 28,588,022
Depository Institutions - 1.26%
Citigroup Inc. .......................... 712,500 38,519,531
Electronic and Other Electric Equipment - 17.19%
ADC Telecommunications, Inc.* ........... 2,649,400 70,954,244
JDS Uniphase Corporation* ............... 461,200 43,655,463
Maxim Integrated Products, Inc.* ........ 448,000 36,022,000
McData Corporation* ..................... 450,700 55,393,847
Nokia Corporation, Series A, ADR (A)..... 734,400 29,238,667
Nortel Networks Corporation ............. 1,494,400 89,010,200
Rambus Inc.* ............................ 200,000 15,781,250
TyCom Ltd.* ............................. 98,300 3,772,262
Xilinx, Inc.* ........................... 2,103,600 180,252,225
Total ................................. 524,080,158
General Merchandise Stores - 4.55%
Kohl's Corporation* ..................... 2,074,000 119,643,875
Wal-Mart Stores, Inc. ................... 394,000 18,961,250
Total ................................. 138,605,125
Health Services - 0.70%
Health Management Associates, Inc.,
Class A* .............................. 1,025,000 21,332,813
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS VANGUARD FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS (Continued)
Industrial Machinery and Equipment - 17.14%
Applied Materials, Inc.* ................ 496,700 $29,429,475
Cisco Systems, Inc.* .................... 2,052,800 113,417,200
Cooper Cameron Corporation* ............. 1,181,300 87,047,044
EMC Corporation* ........................ 2,646,000 262,284,750
Sun Microsystems, Inc.* ................. 259,200 30,447,900
Total ................................. 522,626,369
Instruments and Related Products - 3.00%
Guidant Corporation* .................... 504,000 35,626,500
Medtronic, Inc. ......................... 1,078,800 55,895,325
Total ................................. 91,521,825
Insurance Carriers - 0.20%
MGIC Investment Corporation ............. 99,700 6,094,162
Motion Pictures - 0.94%
Time Warner Incorporated ................ 368,300 28,819,475
Nondepository Institutions - 4.76%
Fannie Mae .............................. 1,120,300 80,101,450
Freddie Mac ............................. 1,201,300 64,945,281
Total ................................. 145,046,731
Oil and Gas Extraction - 4.42%
BJ Services Company* .................... 819,100 50,067,487
Schlumberger Limited .................... 1,030,000 84,781,875
Total ................................. 134,849,362
Transportation Equipment - 3.95%
Harley-Davidson, Inc. ................... 2,515,400 120,424,775
TOTAL COMMON STOCKS - 97.92% $2,985,609,747
(Cost: $1,679,280,553)
TOTAL SHORT-TERM SECURITIES - 2.32% $ 70,701,279
(Cost: $70,701,279)
TOTAL INVESTMENT SECURITIES - 100.24% $3,056,311,026
(Cost: $1,749,981,832)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.24%) (7,385,786)
NET ASSETS - 100.00% $3,048,925,240
See Notes to Schedule of Investments on page 10.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
SEPTEMBER 30, 2000
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A)As of September 30, 2000, the following written call options were
outstanding (See Note 6 to financial statements):
Contracts
Underlying Subject Expiration Month/Premium Market
Security to Call Exercise Price Received Price
--------------- ------------------------ -------- ------
Nokia Corporation,
Series A, ADR 19,500 October/75 $2,681,250$2,559,375
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>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ................................. $3,056,311
Receivables:
Investment securities sold ....................... 16,883
Fund shares sold ................................ 3,406
Dividends and interest .......................... 1,255
Prepaid insurance premium ......................... 50
----------
Total assets ................................... 3,077,905
----------
Liabilities
Payable for investment securities purchased........ 21,131
Payable to Fund shareholders ...................... 6,580
Accrued service fee (Note 2) ...................... 553
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 332
Outstanding call options at market (Note 6) ....... 122
Accrued management fee (Note 2) ................... 107
Accrued distribution fee (Note 2) ................. 72
Due to custodian................................... 18
Accrued accounting services fee (Note 2) .......... 10
Other ............................................. 55
----------
Total liabilities .............................. 28,980
----------
Total net assets ............................. $3,048,925
==========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $215,264
Additional paid-in capital ...................... 1,197,812
Accumulated undistributed income (loss):
Accumulated undistributed net investment loss ... (5)
Accumulated undistributed net realized gain on
investment transactions ........................ 326,966
Net unrealized appreciation in value of
investments .................................... 1,306,329
Net unrealized appreciation in value of
call options written ........................... 2,559
----------
Net assets applicable to outstanding
units of capital ............................. $3,048,925
==========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................... $14.17
Class B............................................ $14.01
Class C............................................ $14.01
Class Y ........................................... $14.23
Capital shares outstanding
Class A ........................................... 210,267
Class B............................................ 3,002
Class C............................................ 553
Class Y ........................................... 1,442
Capital shares authorized .......................... 600,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended SEPTEMBER 30, 2000
(In Thousands)
Investment Loss
Income (Note 1B):
Dividends (net of foreign withholding taxes of $64) $ 11,716
Interest and amortization ....................... 3,575
----------
Total income ................................... 15,291
----------
Expenses (Note 2):
Investment management fee ....................... 17,985
Service fee:
Class A......................................... 5,944
Class B......................................... 48
Class C......................................... 8
Transfer agency and dividend disbursing:
Class A......................................... 3,480
Class B......................................... 87
Class C......................................... 16
Distribution fee:
Class A......................................... 352
Class B......................................... 143
Class C......................................... 26
Accounting services fee ......................... 101
Custodian fees .................................. 98
Shareholder servicing - Class Y ................. 27
Legal fees ...................................... 25
Audit fees ...................................... 21
Other ........................................... 353
----------
Total expenses ................................. 28,714
----------
Net investment loss .......................... (13,423)
----------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities ................... 333,545
Realized net loss on put options................... (1,920)
Realized net gain on call options.................. 731
----------
Realized net gain on investments................ 332,356
----------
Unrealized appreciation in value of investments
during the period ............................... 671,300
Unrealized appreciation in value of call
options written during the period ................ 2,560
----------
Unrealized appreciation in value of investments
during the period............................... 673,860
----------
Net gain on investments ........................ 1,006,216
----------
Net increase in net assets resulting
from operations ............................. $992,793
==========
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the fiscal year
ended September 30,
-----------------------------
2000 1999
Increase in Net Assets ------------------------
Operations:
Net investment loss .............. $ (13,423) $ (4,023)
Realized net gain on investments . 332,356 168,569
Unrealized appreciation .......... 673,860 354,100
---------- ----------
Net increase in net assets
resulting from operations ..... 992,793 518,646
---------- ----------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ......................... --- (1,908)
Class B ......................... --- ---
Class C ......................... --- ---
Class Y ......................... --- (19)
Realized gains on securities
transactions:
Class A ......................... (166,703) (21,925)
Class B ......................... (343) ---
Class C ......................... (57) ---
Class Y ......................... (1,037) (73)
---------- ----------
(168,140) (23,925)
Capital share transactions ---------- ----------
(Note 5) ......................... 288,750 9,703
---------- ----------
Total increase ................ 1,113,403 504,424
Net Assets
Beginning of period ................ 1,935,522 1,431,098
---------- ----------
End of period....................... $3,048,925 $1,935,522
========== ==========
Undistributed net investment loss $(5) $---
=== ====
*See "Financial Highlights" on pages 14 - 17.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS 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,
------------------------------------
2000 1999 1998 1997 1996
------ ------ ------ ------ ------
Net asset value,
beginning of period $10.11 $ 7.50 $9.11 $8.77 $8.97
------ ------ ----- ----- -----
Income from investment
operations:
Net investment
income (loss) ... (0.07) (0.02) 0.01 0.07 0.03
Net realized and
unrealized gain
on investments . 5.00 2.75 0.19 1.69 0.26
------ ------ ----- ----- -----
Total from investment
operations ....... 4.93 2.73 0.20 1.76 0.29
------ ------ ----- ----- -----
Less distributions:
From net investment
income ......... (0.00) (0.01) (0.04) (0.06) (0.04)
From capital gains (0.87) (0.11) (1.77) (1.36) (0.45)
------ ------ ----- ----- -----
Total distributions (0.87) (0.12) (1.81) (1.42) (0.49)
------ ------ ----- ----- -----
Net asset value,
end of period .... $14.17 $10.11 $7.50 $9.11 $8.77
====== ====== ===== ===== =====
Total return* ..... 50.91% 36.74% 3.76% 23.60% 3.59%
Net assets, end of
period (in
millions) ........ $2,979 $1,924 $1,426 $1,478 $1,291
Ratio of expenses
to average net
assets ........... 1.04% 1.13% 1.10% 1.09% 1.09%
Ratio of net
investment income (loss)
to average net
assets ........... -0.48% -0.22% 0.13% 0.86% 0.36%
Portfolio
turnover rate .... 63.78% 83.67% 90.51% 139.14% 57.10%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/4/99*
through
9/30/00
-------
Net asset value,
beginning of period $10.43
-----
Income from investment
operations:
Net investment loss (0.03)
Net realized and
unrealized gain
on investments . 4.48
-----
Total from investment
operations ....... 4.45
-----
Less distributions:
From net investment
income ......... (0.00)
From capital gains (0.87)
-----
Total distributions (0.87)
-----
Net asset value,
end of period .... $14.01
=====
Total return ...... 44.64%
Net assets, end of
period (in
millions) ........ $42
Ratio of expenses to
average net assets 2.14%**
Ratio of net investment
loss to average
net assets ....... -1.49%**
Portfolio turnover
rate ............. 63.78%***
*Commencement of operations.
**Annualized.
***For the fiscal year ended September 30, 2000.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
10/4/99*
through
9/30/00
-------
Net asset value,
beginning of period $10.43
-----
Income from investment
operations:
Net investment loss (0.03)
Net realized and
unrealized gain
on investments . 4.48
-----
Total from investment
operations ....... 4.45
-----
Less distributions:
From net investment
income ......... (0.00)
From capital gains (0.87)
-----
Total distributions (0.87)
-----
Net asset value,
end of period .... $14.01
=====
Total return ...... 44.64%
Net assets, end of
period (in
millions) ........ $8
Ratio of expenses to
average net assets 2.14%**
Ratio of net investment
loss to average
net assets ....... -1.49%**
Portfolio turnover
rate ............. 63.78%***
*Commencement of operations.
**Annualized.
***For the fiscal year ended September 30, 2000.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended
September 30,
--------------------------------------
2000 1999 1998 1997 1996
------- ------ ------ ------ ------
Net asset value,
beginning of period $10.13 $ 7.52 $9.12 $8.78 $8.97
------ ------ ----- ----- -----
Income from investment
operations:
Net investment
income (loss) .. (0.05) (0.00) 0.03 0.09 0.07
Net realized and
unrealized gain
on
investments ..... 5.02 2.75 0.19 1.69 0.24
------ ------ ----- ----- -----
Total from investment
operations........ 4.97 2.75 0.22 1.78 0.31
------ ------ ----- ----- -----
Less distributions:
From net investment
income .......... (0.00) (0.03) (0.05) (0.08) (0.05)
From capital gains (0.87) (0.11) (1.77) (1.36) (0.45)
------ ------ ----- ----- -----
Total distributions (0.87) (0.14) (1.82) (1.44) (0.50)
------ ------ ----- ----- -----
Net asset value,
end of period..... $14.23 $10.13 $7.52 $9.12 $8.78
====== ====== ===== ===== =====
Total return ...... 51.21% 36.94% 4.02% 23.87% 3.80%
Net assets, end of
period (in
millions) ........ $20 $12 $5 $5 $4
Ratio of expenses
to average
net assets ....... 0.82% 0.90% 0.91% 0.90% 0.91%
Ratio of net investment
income (loss) to average
net assets........ -0.26% -0.02% 0.33% 1.05% 0.69%
Portfolio
turnover rate..... 63.78% 83.67% 90.51% 139.14% 57.10%
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS VANGUARD FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors Vanguard Fund, Inc. (the "Fund"),
formerly United Vanguard Fund, Inc., is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. Its investment objective is to seek appreciation.
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 accounting principles
generally accepted in the United States of America.
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 business day
following record date. Net investment income dividends and
capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting
principles generally accepted in the United States of America.
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, 2000, $13,420,461 was
reclassified between additional paid-in capital and accumulated
undistributed net investment income. Net investment income, net
realized gains and net assets were not affected by this change.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America 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 is payable by the Fund at the annual rates of .70%
of net assets up to $1 billion, .65% of net assets over $1 billion up
to $2 billion, .60% of net assets over $2 billion up to $3 billion and
.55% over $3 billion. The Fund accrues and pays the 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 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as
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, Class B and Class C shares, the Fund pays WARSCO a
monthly per account charge for transfer agency and dividend
disbursement services of $1.3625 for each shareholder account which
was in existence at any time during the prior month. With respect to
Class Y shares, the Fund pays WARSCO a monthly fee at an annual rate
of 0.15% 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.
Prior to September 1, 2000, for Class A, Class B and Class C
shares, the Fund paid 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.
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 $7,454,586. During the period ended September 30,
2000, W&R received $22,073 and $3,036 in deferred sales charges for
Class B shares and Class C shares, respectively. With respect to
Class A, Class B and Class C shares, W&R paid sales commissions of
$5,221,627 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 0.25% 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.
Under the Distribution and Service Plan adopted by the Fund for
Class B and Class C shares, respectively, the Fund may pay W&R, on an
annual basis, a service fee of up to 0.25% of the average daily net
assets of the class to compensate W&R for providing services to
shareholders of that class and/or maintaining shareholder accounts for
that class and a distribution fee of up to 0.75% of the average daily
net assets of the class to compensate W&R for distributing the shares
of that class. The Class B Plan and the Class C Plan each permit W&R
to receive compensation, through the distribution and service fee,
respectively, for its distribution activities for that class, which
are similar to the distribution activities described with respect to
the Class A Plan, and for its activities in providing personal
services to shareholders of that class and/or maintaining shareholder
accounts of that class, which are similar to the corresponding
activities for which it is entitled to reimbursement under the Class A
Plan.
The Fund paid Directors' fees of $82,571, 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 $1,819,135,927 while proceeds
from maturities and sales aggregated $1,700,476,410. Purchases of
options aggregated $5,622,500 while proceeds from options aggregated
$7,114,400. Purchases of short-term securities aggregated
$2,436,169,876, while proceeds from maturities and sales aggregated
$2,442,744,048. No U.S. Government securities were purchased or sold
during the period ended September 30, 2000.
For Federal income tax purposes, cost of investments owned at
September 30, 2000 was $1,751,284,630, resulting in net unrealized
appreciation of $1,305,026,396, of which $1,344,929,044 related to
appreciated securities and $39,902,648 related to depreciated
securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain
net income of $330,571,326 during its fiscal year ended September 30,
2000, of which a portion was paid to shareholders during the period
ended September 30, 2000. Remaining capital gain net income will be
distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A,
Class B, Class C and Class Y, each of which have equal rights as to
assets and voting privileges. Class Y shares are not subject to a
sales charge on purchases, are not subject to a Rule 12b-1
Distribution and Service Plan and are subject to a separate transfer
agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of each class
are offered is contained in the Prospectus and the 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 their relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
Transactions in capital stock are summarized below. Amounts are
in thousands.
For the fiscal
year ended September 30,
------------------------
2000 1999
---------- ----------
Shares issued from sale of shares:
Class A ............ 40,923 44,094
Class B............. 3,141 ---
Class C............. 601 ---
Class Y ............ 789 886
Shares issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............ 14,266 2,675
Class B............. 30 ---
Class C............. 5 ---
Class Y ............ 59 11
Shares redeemed:
Class A ............ (35,178) (46,621)
Class B............. (169) ---
Class C............. (53) ---
Class Y ............ (528) (402)
------ ------
Increase in outstanding capital
shares.............. 23,886 643
====== ======
Value issued from sale of shares:
Class A ............ $544,210 $423,994
Class B............. 41,800 ---
Class C............. 8,068 ---
Class Y ............ 10,414 8,651
Value issued from reinvestment of
dividends and/or capital gains
distribution:
Class A ............ 162,065 23,248
Class B............. 343 ---
Class C............. 57 ---
Class Y ............ 673 92
Value redeemed:
Class A ............ (468,905) (442,540)
Class B............. (2,345) ---
Class C............. (728) ---
Class Y ............ (6,902) (3,742)
-------- --------
Increase in outstanding
capital ............ $288,750 $ 9,703
======== ========
NOTE 6 -- Options
Options purchased by the Fund are accounted for in the same
manner as marketable portfolio securities. The cost of portfolio
securities acquired through the exercise of call options is increased
by the premium paid to purchase the call. The proceeds from
securities sold through the exercise of put options are decreased by
the premium paid to purchase the put.
When the Fund writes (sells) an option, an amount equal to the
premium received by the Fund is recorded as a liability. The amount
of the liability is subsequently adjusted to reflect the current
market value of the option written. The current market value of an
option is the last sales price on the principal exchange on which the
option is traded, or in the absence of transactions, the mean between
the bid and asked prices or at a value supplied by a broker-dealer.
When an option expires on its stipulated expiration date or the Fund
enters into a closing purchase transaction, the Fund realizes a gain
(or loss if the cost of a closing purchase transaction exceeds the
premium received when the call option was sold) and the liability
related to such option is extinguished. When a call option is
exercised, the premium is added to the proceeds from the sale of the
underlying security in determining whether the Fund has realized a
gain or loss. For the Fund, when a put written is exercised, the cost
basis of the securities purchased by the Fund is reduced by the amount
of the premium.
Transactions in call options written were as follows:
Number of Premiums
Contracts Received
--------- --------
Outstanding at
September 30, 1999 --- $ ---
Options written 26,500 3,575,050
Options terminated
in closing purchase
transactions (6,500) (893,750)
Options exercised --- ---
Options expired --- ---
----- ---------
Outstanding at
September 30, 2000 19,500 $2,681,250
===== =========
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors Vanguard Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Waddell & Reed Advisors
Vanguard Fund, Inc., formerly United Vanguard Fund, Inc. (the "Fund")
as of September 30, 2000, and the related statement of operations for
the fiscal year then ended, the statements of changes in net assets
for each of the two fiscal years in the period then ended, and the
financial highlights for each of the five fiscal years in the 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 auditing standards
generally accepted in the United States of America. 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 as of September 30, 2000, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Waddell & Reed Advisors Vanguard Fund, Inc. as
of September 30, 2000, the results of its operations for the fiscal
year then ended, the changes in its net assets for each of the two
fiscal years in the period then ended, and the financial highlights
for each of the five fiscal years in the period then ended in
conformity with accounting principles generally accepted in the United
States of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<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, B, C and Y
12-15-99 $0.8710 $0.0314 $0.8396 $--- $0.0314 $0.8396
======= ======= ======= ======= ======= =======
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, San Mateo, California
Linda K. 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
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, 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 Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors Vanguard 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
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1005A(9-00)
For more complete information regarding any of the mutual funds in
Waddell & Reed Advisors Funds, including charges and expenses, please
obtain the Fund's prospectus by calling or writing to the number or
address listed above. Please read the prospectus carefully before
investing.
