Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 4, 1995. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United International Growth Fund, Inc.
Class A Shares
This Fund seeks the long-term appreciation of your investment. Realization of
income is a secondary goal.
This Prospectus describes one class of shares of the Fund -- Class A Shares.
Prospectus
July 4, 1995
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
<PAGE>
Table of Contents
An Overview of the Fund..................................3
Expenses.................................................5
Financial Highlights.....................................6
Performance..............................................8
Explanation of Terms................................8
About Waddell & Reed.....................................9
About the Investment Principles of the Fund..............10
Investment Goals and Principles.....................10
Securities and Investment Practices
and Associated Risks................................10
About Your Account.......................................20
Ways to Set Up Your Account.........................20
Buying Shares.......................................21
Minimum Investments.................................23
Adding to Your Account..............................23
Selling Shares......................................23
Shareholder Services................................26
Personal Service...............................26
Reports........................................26
Exchanges......................................26
Automatic Transactions.........................26
Dividends, Distributions, and Taxes.................26
Distributions..................................26
Taxes..........................................27
About the Management and Expenses of the Fund............30
WRIMCO and Its Affiliates...........................31
Breakdown of Expenses...............................32
Management Fee.................................32
Other Expenses.................................32
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United International
Growth Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies: United International Growth Fund, Inc. (the "Fund")
seeks, as a primary goal, the long-term appreciation of your investment.
Realization of income is a secondary goal. The Fund seeks to achieve these
goals by investing in securities issued by companies or governments of any
nation. The Fund invests primarily in common stocks, preferred stocks and debt
securities. See "About the Investment Principles of the Fund" for further
information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest: The Fund offers investment goals that are compatible
with different investment decisions by investors seeking international
investment opportunities. You should consider whether the Fund fits with your
particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases 5.75%
(as a percentage of offering price)
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.72%
12b-1 fees1 0.25%
Other expenses 0.40%
Total Fund
operating expenses2 1.37%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $71
3 years $98
5 years $128
10 years $213
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class A shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1Expense information reflects the 12b-1 service fee which became effective
October 1, 1993, which fee will not exceed .25% of the Fund's average annual net
assets.
2Expense information has been restated to reflect the current maximum 12b-1
service fee which became effective October 1, 1993. Retirement plan accounts
may be subject to a $2 fee imposed by the plan custodian for use of the Flexible
Withdrawal Service.
3Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class A share outstanding throughout each period.*
<TABLE>
<CAPTION>
For the
six months
ended For the fiscal year ended June 30,
December 31, -----------------------------------------------------------------------------------------------
1994 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period .... $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70 $5.92
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss) (0.01) .04 .07 .08 .12 .12 .15 .11 .07 .13 .18
Net realized and
unrealized gain
(loss) on
investments .22 2.32 .11 1.20 (0.83) .83 (0.15) (0.39) 2.44 2.76 .58
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... .21 2.36 .18 1.28 (0.71) .95 0.00 (0.28) 2.51 2.89 .76
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from
net investment
income ..... (0.02) (0.04) (0.07) (0.09) (0.12) (0.13) (0.13) (0.13) (0.08) (0.15) (0.23)
Distributions from
capital gains (0.93) (0.50) (0.05) (0.03) 0.00 (0.26) (0.26) (2.06) (1.62) (0.18) (0.75)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.95) (0.54) (0.12) (0.12) (0.12) (0.39) (0.39) (2.19) (1.70) (0.33) (0.98)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $8.24 $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return**.. 2.26% 33.31% 2.62% 21.59% -10.50% 15.44% 0.03% -1.30% 38.23% 52.82% 15.06%
Net assets, end
of period
(000 omitted) $639,054 $572,456 $336,382 $322,534 $259,322 $291,691 $258,168 $289,920 $291,897 $188,916 $107,691
Ratio of
expenses to
average
net assets ... 1.26%*** 1.20% 1.18% 1.18% 1.20% 1.17% 1.13% 1.12% 1.07% 1.09% 1.16%
Ratio of net
investment income
to average
net assets ... -0.26%*** 0.57% 1.07% 1.17% 1.89% 1.81% 2.29% 1.47% 0.97% 1.94% 3.46%
Portfolio turn-
over rate**** . 48.46%*** 83.76% 94.22% 112.82% 118.05% 196.43% 193.01% 228.98% 216.66% 167.97% 132.48%
</TABLE>
*On July 4, 1995, the Fund began offering Class Y shares to the public. Fund
shares outstanding prior to that date were designated Class A shares.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
****This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the lesser of its purchases or sales
in the period, excluding short-term securities.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may also
advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect a
higher rate of return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department which is part of the Waddell & Reed headquarters
operations in Overland Park, Kansas is available to assist you and your Waddell
& Reed account representative. You may speak with a customer service
representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is the long-term appreciation of your investment.
Realization of income is a secondary goal. The Fund seeks to achieve these
goals by investing in securities issued by companies or governments of any
nation. The securities selected to attempt to achieve the Fund's primary goal
are those issued by companies that WRIMCO believes have the potential for long-
term growth.
There are three main kinds of securities that the Fund owns: common stock,
preferred stock and debt securities. The Fund may also own convertible
securities. During normal market conditions, the Fund will have at least 65% of
its assets invested in growth securities.
Securities purchased by the Fund because they may increase in value over the
long term will usually be common stocks or securities that may be converted into
common stocks or rights for the purchase of common stocks. When WRIMCO believes
that common stocks or similar securities do not offer adequate growth potential
because of market or economic conditions, the Fund may invest up to all of its
assets as a temporary measure in either debt securities (including commercial
paper or short-term U.S. Government securities) or preferred stocks or both.
All or a substantial amount of the Fund's assets may be invested in foreign
securities if, in WRIMCO's opinion, doing so might assist in achieving the
Fund's goals. For defensive purposes the Fund may at times temporarily invest
completely or substantially in U.S. securities.
There is no assurance that the Fund will achieve its goals; some market risks
are inherent in all securities to varying degrees.
Securities and Investment Practices and Associated Risks
The following pages contain more detailed information about types of instruments
in which the Fund may invest, and strategies WRIMCO may employ in pursuit of the
Fund's investment goals. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goal. As a
shareholder, you will receive annual and semiannual reports detailing the Fund's
holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the approval
of the shareholders of the Fund. Operating policies may be changed by the Board
of Directors without the approval of the shareholders. The goals of the Fund,
the types of securities in which the Fund may invest and the proportion of its
assets that may be invested in each such type are matters of fundamental policy;
unless otherwise indicated, the types of other assets in which the Fund may
invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which the Fund invests
may include debt securities whose performance is linked to a specified equity
security or security index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by
Standard & Poor's Ratings Group or C by Moody's Investors Service, Inc.). In
addition, the Fund will treat unrated securities judged by WRIMCO to be of
equivalent quality to a rated security to be equivalent to securities having
that rating. Credit ratings for individual securities may change from time to
time, and the Fund may retain a portfolio security whose rating has been
changed. See the SAI for additional information about non-investment grade debt
securities.
Preferred Stock. The Fund may invest in preferred stock rated in any rating
category by an established rating service and unrated preferred stock judged by
WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: As an operating policy, the Fund does not intend to
invest more than 5% of its assets in non-investment grade debt securities.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
The Fund may invest in any country approved in accordance with policies adopted
by the Board of Directors.
Policies and Restrictions: The Fund may purchase foreign securities only if
they: (i) are listed or admitted to trading on a domestic or foreign securities
exchange, with the exception of warrants, rights or restricted securities, which
need not be so listed or admitted; (ii) are represented by American Depositary
Receipts (receipts issued against securities of foreign issuers deposited or to
be deposited with an American depository) so listed or admitted on a domestic
securities exchange or traded in the United States over-the-counter ("OTC")
market; or (iii) are issued or guaranteed by any foreign government or any
subdivision, agency or instrumentality thereof.
Normally, at least 80% of the Fund's assets will be invested in foreign
securities.
Under normal market conditions, the Fund will have at least 65% of its assets
invested in at least three different countries outside the U.S.
The Fund may not purchase a particular foreign security if as a result more than
75% of its assets would be invested in securities of that foreign country.
The Fund will not invest more than 25% of its assets in the securities issued by
the government of any one foreign country.
Options, Forward Currency Contracts and Other Strategies. The Fund may use
certain options, forward currency contracts and certain other strategies
described herein to attempt to enhance income or to attempt to reduce the
overall risk of its investments. The strategies described below may be used in
an attempt to manage certain risks of the Fund's investments that can affect
fluctuations in its net asset value.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed.
Options. The Fund may write listed covered calls on securities. A call option
gives the purchaser the right to buy, and obligates the writer to sell, the
underlying investment at the agreed upon exercise price during the option
period.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The Fund will be able to close a position in an option
it has written only if there is a market for the call. If the Fund is not able
to enter into a closing transaction on an option it has written, it will be
required to maintain the securities subject to the call until a closing purchase
transaction can be entered into or the option expires.
Policies and Restrictions: As a fundamental policy, the Fund may write listed
covered calls on securities (i.e., the Fund must own the securities that are
subject to the call or have the right to acquire them without additional
payment) if, when a call is written, not more than 10% of its total assets would
be subject to calls.
The Fund may purchase call options only to close its position in a call it has
written.
Forward Currency Contracts. The Fund may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date
either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, the Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. The Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. The Fund may also use forward contracts
in one currency or a basket of currencies to attempt to hedge against
fluctuations in the value of securities denominated in a different currency if
WRIMCO anticipates that there will be a correlation between the two currencies.
The Fund may use forward currency contracts to shift the Fund's exposure to
foreign currency exchange rate changes from one foreign currency to another.
For example, if the Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the Fund's exposure to
foreign currency exchange rate fluctuations. The Fund may also purchase forward
currency contracts to enhance income when WRIMCO anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
Policies and Restrictions: As a fundamental policy, the Fund may enter into
forward currency contracts provided that it does not have more than 15% of the
value of its assets committed to the consummation of such contracts; however,
the Fund will not enter into forward currency contracts or maintain a net
exposure to such contracts if the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
As a fundamental policy, the Fund may hold foreign currency only in connection
with forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than the
underlying instruments.
Risks of Derivative Instruments. The use of options and the investment in
indexed securities involve special risks, including (i) possible imperfect or no
correlation between price movements of the portfolio investments (held or
intended to be purchased) involved in the transaction and price movements of the
instruments involved in the transaction; (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time; (iii) the
need for additional portfolio management skills and techniques; (iv) losses due
to unanticipated market price movements; (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
investments involved in the transaction; (vi) incorrect forecasts by WRIMCO
concerning currency exchange rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective; and (vii) the possible inability of the Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. The use of
derivative techniques for speculative purposes can increase investment risk.
The risks associated with such instruments are described herein. See the SAI
for additional information about these instruments and their risk
considerations.
If WRIMCO judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised or if there is not a liquid secondary market to
close out a position that the Fund has entered into.
Options transactions may increase portfolio turnover rates, which results in
correspondingly greater commission expenses and transaction costs and may result
in certain tax consequences. See the SAI for further information regarding
these and other risks.
Successful use of forward currency contracts will depend on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change the Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that it will hedge at an
appropriate time.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect the
Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to the delayed-delivery transaction fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss.
Policies and Restrictions: The Fund may purchase securities in which it may
invest on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities that
are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale. Certain
restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable price.
Difficulty in selling securities may result in a loss or may be costly to the
Fund.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
restricted foreign securities; however, the Fund may not purchase restricted
securities if as a result of such purchase more than 5% of the Fund's total
assets would consist of restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not invest in
the securities of any company if, as a result, it would then own more than 10%
of such company's voting securities or any class of such company's securities or
more than 5% of the Fund's total assets would be invested in that company.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions:
As a fundamental policy, the Fund may borrow only from banks as a temporary
measure as well as for extraordinary or emergency purposes but only up to 5% of
its total assets. See the SAI for further information on the Fund's ability to
borrow.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend more
than 10% of its assets at any one time.
Other Instruments may include rights, warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: The Fund may buy shares of investment companies that
do not redeem their shares subject to the restrictions in the SAI. As a
fundamental policy, the Fund may buy shares of other investment companies that
do not redeem their shares if it does not invest more than 10% of its total
assets in such shares, subject to the conditions in the SAI. However, the Fund
does not currently intend to invest more than 5% of its assets in such
securities.
Only 5% of the Fund's assets may be invested in companies that have not been in
continuous operation for at least three years (including predecessor companies).
The Fund may purchase warrants and rights to purchase securities if as a result
of such purchase no more than 5% of its assets would consist of warrants, rights
or a combination thereof.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- ----------------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
- ----------------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
- ----------------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under
70 1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business
owners or those with self-employed income (and their eligible employees) with
many of the same advantages as a Keogh, but with fewer administrative
requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute
a percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school
systems or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a tax-
deferred basis.
- ----------------------------------------------------------
Gifts or Transfers to a Minor (UGMA, UTMA)
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
- ----------------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- ----------------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class A share (price to buy one Class A share) is the
Fund's Class A net asset value ("NAV") plus the sales charge shown in the table
below.
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- --------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The Fund normally calculates the net asset values of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be delayed
for up to ten days to ensure that your previous investment has cleared.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and whether you are
subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of shares of
a corresponding class of any of the funds in the United Group, to the extent
otherwise permitted, except United Municipal Bond Fund, Inc., United Cash
Management, Inc., United Government Securities Fund, Inc. and United Municipal
High Income Fund, Inc., with the net asset value of Class A shares already held
("rights of accumulation") and by grouping all purchases of Class A shares made
during a thirteen-month period ("Statement of Intention"). Shares of a
corresponding class of another fund purchased through a contractual plan may not
be included unless the plan has been completed. Purchases by certain related
persons may be grouped. Additional information and applicable forms are
available from Waddell & Reed account representatives.
Class A shares may be purchased at net asset value by the Directors and officers
of the Fund, employees of Waddell & Reed, Inc., employees of their affiliates,
account representatives of Waddell & Reed, Inc. and the spouse, children,
parents, children's spouses and spouse's parents of each such Director, officer,
employee and account representative. Purchases of Class A shares in certain
retirement plans and certain trusts for these persons may also be made at net
asset value. Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100 or
more eligible employees may be made at net asset value. Shares may also be
issued at net asset value in a merger, acquisition or exchange offer made
pursuant to a plan of reorganization to which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates
$25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
. the detachable form that accompanies the confirmation of a prior purchase
by you or your year-to-date statement, or
. a letter showing your account number, the account registration and stating
the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class A
NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell & Reed
account representative, or write a letter of instruction with:
. the name on the account registration,
. the Fund's name,
. the Fund account number,
. the dollar amount or number of shares to be redeemed, and
. any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special
Requirements
Individual or Joint The written
Tenant instructions must be
signed by all persons
required to sign for
transactions, exactly
as their names appear
on the account.
Sole Proprietorship The written
instructions must be
signed by the
individual owner of
the business.
UGMA, UTMA The custodian must
sign the written
instructions
indicating capacity as
custodian.
Retirement account The written
instructions must be
signed by a properly
authorized person.
Trust The trustee must sign
the written
instructions
indicating capacity as
trustee. If the
trustee's name is not
in the account
registration, provide
a currently certified
copy of the trust
document.
Business or At least one person
Organization authorized by
corporate resolution
to act on the account
must sign the written
instructions.
Conservator, Guardian The written
or Other Fiduciary instructions must be
signed by the person
properly authorized by
court order to act in
the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted by Waddell & Reed, Inc.
at its home office. Note the following:
. Written requests for redemption must be in good order, which requires that
if more than one person owns the shares, each owner must sign the written
request.
. If you hold a certificate, it must be properly endorsed and sent to the
Fund.
. If you recently purchased the shares by check, the Fund may delay payment
of redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares will
be delayed until the earlier of 10 days or the date the Fund is able to verify
that your purchase check has cleared and been honored.
. Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
. the request for redemption is made by a corporation, partnership or
fiduciary,
. the request for redemption is made by someone other than the owner of
record, or
. the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a federally
chartered savings and loan or a member firm of a national stock exchange or
other eligible guarantor in accordance with procedures of the Fund's transfer
agent. A notary public cannot provide a signature guarantee.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of a corresponding class of
any of the funds in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, exchange, transfer or
redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
Exchanges
You may sell your Class A shares and buy corresponding shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual or
annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit and
will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses, and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed account representative for
more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions, and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed from the Fund's
net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses,
semiannually in June and December. Net capital gains (and any net realized
gains from foreign currency transactions) ordinarily are distributed in
December. The Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on undistributed income and capital gains.
Distribution Options.
When you open an account, specify on your application how you want to receive
your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class A shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividends and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class A
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code") so that it will be relieved of Federal income tax on that part of
its investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are tax requirements that the Fund must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid in
additional Fund shares. Distributions of the Fund's realized net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year. Under certain circumstances, the Fund may
elect to permit shareholders to take a credit or deduction for foreign income
taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other fund
in the United Group generally will have similar tax consequences. However,
special rules apply when you dispose of Fund shares through a redemption or
exchange within ninety days after your purchase thereof and subsequently
reacquire Fund shares or acquire shares of another fund in the United Group
without paying a sales charge due to the thirty-day reinvestment privilege or
exchange privilege. See "About Your Account." In these cases, any gain on the
disposition of the Fund shares would be increased, or loss decreased, by the
amount of the sales charge you paid when those shares were acquired, and that
amount will increase the adjusted basis of the shares subsequently acquired. In
addition, if you purchase Fund Class A shares within thirty days before or after
redeeming other Fund Class A shares at a loss, part or all of that loss will not
be deductible and will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
About the Management and Expenses of the Fund
United International Growth Fund, Inc. is a mutual fund: an investment that
pools shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end management investment company organized as a
corporation under Maryland law on November 6, 1974, as successor to a Delaware
corporation which commenced operations in 1970.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of its affairs. The majority of directors are not affiliated
with Waddell & Reed, Inc.
The Fund has two classes of shares. Prior to July 4, 1995, the Fund offered
only one class of shares to the public. Shares outstanding on that date were
designated as Class A shares, which are offered by this Prospectus. In
addition, the Fund offers Class Y shares through a separate Prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling 913-236-2000 or by writing to Waddell &
Reed, Inc. at the address on the inside back cover of the Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended ("1940 Act"), applies to the Fund, the directors
are required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in writing to do so by
the shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote of
any Class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. since
each commenced operations in February 1993 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995.
Mark L. Yockey is primarily responsible for the day-to-day management of the
Fund. Mr. Yockey has held his Fund responsibilities since February 1990. He is
Vice President of WRIMCO, Vice President of the Fund, and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Yockey has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1990 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since November
1986. Other members of WRIMCO's investment management department provide input
on market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing daily
the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company and an indirect subsidiary of United Investors
Management Company, a holding company, and Torchmark Corporation, a holding
company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a specific
fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .30 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the Fund
in the group fee computed each day on the combined net asset values of all the
funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ ---------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $10.5 billion as of June 30, 1994. Management fees for the fiscal
year ended June 30, 1994 were 0.72% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class A
shares, the Fund pays the Shareholder Servicing Agent a monthly fee for each
Class A shareholder account that was in existence at any time during the month,
and a fee for each account on which a dividend or distribution had a record date
during the month.
The Fund has adopted a Service Plan pursuant to Rule 12b-1 of the 1940 Act with
respect to its Class A shares. Under the Plan, the Fund may pay monthly a fee
to Waddell & Reed, Inc. in an amount not to exceed .25% of the Fund's average
annual net assets of its Class A shares. The fee is to be paid to reimburse
Waddell & Reed, Inc. for amounts it expends in connection with the provision of
personal services to Class A shareholders and/or maintenance of Class A
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc. and
its affiliates in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders by office
personnel located at field sales offices; engaging in other activities useful in
providing personal services to Class A shareholders and/or the maintenance of
Class A shareholder accounts; and in compensating broker-dealers who may
regularly sell Class A shares, and other third parties, for providing Class A
shareholder services and/or maintaining Class A shareholder accounts.
The total expenses for the fiscal year ended June 30, 1994 for the Fund's Class
A shares were 1.20% of the average net assets of the Fund's Class A shares.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
United International Growth Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, Kansas Accounting Services
66201-9217 Agent
(913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United International Growth Fund, Inc.
Class A Shares
PROSPECTUS
July 4, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2002(7-95)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 4, 1995. The SAI is available free upon request to the Fund or
Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
United International Growth Fund, Inc.
Class Y Shares
This Fund seeks the long-term appreciation of your investment. Realization of
income is a secondary goal.
This Prospectus describes one class of shares of the Fund -- Class Y Shares.
Prospectus
July 4, 1995
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
An Overview of the Fund..................................3
Expenses.................................................4
Financial Highlights.....................................5
Performance..............................................6
Explanation of Terms................................6
About Waddell & Reed.....................................7
About the Investment Principles of the Fund..............8
Investment Goals and Principles.....................8
Securities and Investment Practices
and Associated Risks................................8
About Your Account.......................................18
Buying Shares.......................................18
Minimum Investments.................................19
Adding to Your Account..............................19
Selling Shares......................................20
Telephone Transactions..............................21
Shareholder Services................................22
Personal Service...............................22
Reports........................................22
Exchanges......................................22
Dividends, Distributions, and Taxes.................22
Distributions..................................22
Taxes..........................................23
About the Management and Expenses of the Fund............25
WRIMCO and Its Affiliates...........................26
Breakdown of Expenses...............................27
Management Fee.................................27
Other Expenses.................................27
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United International
Growth Fund, Inc., an open-end, diversified management investment company.
Goals and Strategies:
United International Growth Fund, Inc. (the "Fund") seeks, as a primary goal,
the long-term appreciation of your investment. Realization of income is a
secondary goal. The Fund seeks to achieve these goals by investing in
securities issued by companies or governments of any nation. The Fund invests
primarily in common stocks, preferred stocks and debt securities. See "About
the Investment Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of the Fund
is the net asset value of a Class Y share. There is no sales charge incurred
upon purchase of Class Y shares of the Fund. See "About Your Account" for
information on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
Who May Want to Invest: The Fund offers investment goals that are compatible
with different investment decisions by investors seeking international
investment opportunities. You should consider whether the Fund fits with your
particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).5
Management fees0.72%
12b-1 fees None
Other expenses 0.35%
Total Fund
operating expenses1.07%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return6 and (2) redemption at the end of each time period:
1 year $11
3 years $34
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class Y shares of the Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
5Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended June 30, 1994, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
6Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
Financial Highlights for Class Y shares are not included because the Fund did
not offer Class Y shares during the period ended December 31, 1994.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may also
advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Fund may quote its performance rankings and/or other information as
published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Fund may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that the Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of the Fund's
shares when redeemed may be more or less than their original cost.
The Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department which is part of the Waddell & Reed headquarters
operations in Overland Park, Kansas is available to assist you and your Waddell
& Reed account representative. You may speak with a customer service
representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Fund
Investment Goals and Principles
The primary goal of the Fund is the long-term appreciation of your investment.
Realization of income is a secondary goal. The Fund seeks to achieve these
goals by investing in securities issued by companies or governments of any
nation. The securities selected to attempt to achieve the Fund's primary goal
are those issued by companies that WRIMCO believes have the potential for long-
term growth.
There are three main kinds of securities that the Fund owns: common stock,
preferred stock and debt securities. The Fund may also own convertible
securities. During normal market conditions, the Fund will have at least 65% of
its assets invested in growth securities.
Securities purchased by the Fund because they may increase in value over the
long term will usually be common stocks or securities that may be converted into
common stocks or rights for the purchase of common stocks. When WRIMCO believes
that common stocks or similar securities do not offer adequate growth potential
because of market or economic conditions, the Fund may invest up to all of its
assets as a temporary measure in either debt securities (including commercial
paper or short-term U.S. Government securities) or preferred stocks or both.
All or a substantial amount of the Fund's assets may be invested in foreign
securities if, in WRIMCO's opinion, doing so might assist in achieving the
Fund's goals. For defensive purposes the Fund may at times temporarily invest
completely or substantially in U.S. securities.
There is no assurance that the Fund will achieve its goals; some market risks
are inherent in all securities to varying degrees.
Securities and Investment Practices and Associated Risks
The following pages contain more detailed information about types of instruments
in which the Fund may invest, and strategies WRIMCO may employ in pursuit of the
Fund's investment goals. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted by the Fund's investment policies and restrictions
unless it believes that doing so will help the Fund achieve its goal. As a
shareholder, you will receive annual and semiannual reports detailing the Fund's
holdings.
Certain of the investment policies and restrictions of the Fund are also stated
below. A fundamental policy of the Fund may not be changed without the approval
of the shareholders of the Fund. Operating policies may be changed by the Board
of Directors without the approval of the shareholders. The goals of the Fund,
the types of securities in which the Fund may invest and the proportion of its
assets that may be invested in each such type are matters of fundamental policy;
unless otherwise indicated, the types of other assets in which the Fund may
invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Fund's investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
preferred stock that converts to common stock either automatically or after a
specified period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which the Fund invests
may include debt securities whose performance is linked to a specified equity
security or security index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
Subject to its investment restrictions, the Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by
Standard & Poor's Ratings Group or C by Moody's Investors Service, Inc.). In
addition, the Fund will treat unrated securities judged by WRIMCO to be of
equivalent quality to a rated security to be equivalent to securities having
that rating. Credit ratings for individual securities may change from time to
time, and the Fund may retain a portfolio security whose rating has been
changed. See the SAI for additional information about non-investment grade debt
securities.
Preferred Stock. The Fund may invest in preferred stock rated in any rating
category by an established rating service and unrated preferred stock judged by
WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: As an operating policy, the Fund does not intend to
invest more than 5% of its assets in non-investment grade debt securities.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
The Fund may invest in any country approved in accordance with policies adopted
by the Board of Directors.
Policies and Restrictions: The Fund may purchase foreign securities only if
they: (i) are listed or admitted to trading on a domestic or foreign securities
exchange, with the exception of warrants, rights or restricted securities, which
need not be so listed or admitted; (ii) are represented by American Depositary
Receipts (receipts issued against securities of foreign issuers deposited or to
be deposited with an American depository) so listed or admitted on a domestic
securities exchange or traded in the United States over-the-counter ("OTC")
market; or (iii) are issued or guaranteed by any foreign government or any
subdivision, agency or instrumentality thereof.
Normally, at least 80% of the Fund's assets will be invested in foreign
securities.
Under normal market conditions, the Fund will have at least 65% of its assets
invested in at least three different countries outside the U.S.
The Fund may not purchase a particular foreign security if as a result more than
75% of its assets would be invested in securities of that foreign country.
The Fund will not invest more than 25% of its assets in the securities issued by
the government of any one foreign country.
Options, Forward Currency Contracts and Other Strategies. The Fund may use
certain options, forward currency contracts and certain other strategies
described herein to attempt to enhance income or to attempt to reduce the
overall risk of its investments. The strategies described below may be used in
an attempt to manage certain risks of the Fund's investments that can affect
fluctuations in its net asset value.
The Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. The Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed.
Options. The Fund may write listed covered calls on securities. A call option
gives the purchaser the right to buy, and obligates the writer to sell, the
underlying investment at the agreed upon exercise price during the option
period.
Options offer large amounts of leverage, which will result in the Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The Fund will be able to close a position in an option
it has written only if there is a market for the call. If the Fund is not able
to enter into a closing transaction on an option it has written, it will be
required to maintain the securities subject to the call until a closing purchase
transaction can be entered into or the option expires.
Policies and Restrictions: As a fundamental policy, the Fund may write listed
covered calls on securities (i.e., the Fund must own the securities that are
subject to the call or have the right to acquire them without additional
payment) if, when a call is written, not more than 10% of its total assets would
be subject to calls.
The Fund may purchase call options only to close its position in a call it has
written.
Forward Currency Contracts. The Fund may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date
either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, the Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. The Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. The Fund may also use forward contracts
in one currency or a basket of currencies to attempt to hedge against
fluctuations in the value of securities denominated in a different currency if
WRIMCO anticipates that there will be a correlation between the two currencies.
The Fund may use forward currency contracts to shift the Fund's exposure to
foreign currency exchange rate changes from one foreign currency to another.
For example, if the Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the Fund's exposure to
foreign currency exchange rate fluctuations. The Fund may also purchase forward
currency contracts to enhance income when WRIMCO anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
Policies and Restrictions: As a fundamental policy, the Fund may enter into
forward currency contracts provided that it does not have more than 15% of the
value of its assets committed to the consummation of such contracts; however,
the Fund will not enter into forward currency contracts or maintain a net
exposure to such contracts if the consummation of such contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of the
Fund's portfolio securities or other assets denominated in that currency.
As a fundamental policy, the Fund may hold foreign currency only in connection
with forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Indexed Securities. The Fund may purchase and sell indexed securities, which
are securities whose prices are indexed to the prices of other securities,
securities indices, currencies, precious metals or other commodities, or other
financial indicators. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. The performance of indexed
securities depends to a great extent on the performance of the security,
currency, or other instrument to which they are indexed, and may also be
influenced by interest rate changes in the U.S. and abroad. At the same time,
indexed securities are subject to the credit risks associated with the issuer of
the security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than the
underlying instruments.
Risks of Derivative Instruments. The use of options and the investment in
indexed securities involve special risks, including (i) possible imperfect or no
correlation between price movements of the portfolio investments (held or
intended to be purchased) involved in the transaction and price movements of the
instruments involved in the transaction; (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time; (iii) the
need for additional portfolio management skills and techniques; (iv) losses due
to unanticipated market price movements; (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
investments involved in the transaction; (vi) incorrect forecasts by WRIMCO
concerning currency exchange rates or direction of price fluctuations of the
investment involved in the transaction, which may result in the strategy being
ineffective; and (vii) the possible inability of the Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. Such equal price changes are not always possible because
the investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of the
Fund's portfolio of investments and may use some of these instruments to adjust
the return characteristics of the Fund's portfolio of investments. The use of
derivative techniques for speculative purposes can increase investment risk.
The risks associated with such instruments are described herein. See the SAI
for additional information about these instruments and their risk
considerations.
If WRIMCO judges market conditions incorrectly or employs a strategy that does
not correlate well with the Fund's investments, these techniques could result in
a loss, regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of the Fund and may involve a small
investment of cash relative to the magnitude of the risk assumed. In addition,
these techniques could result in a loss if the counterparty to the transaction
does not perform as promised or if there is not a liquid secondary market to
close out a position that the Fund has entered into.
Options transactions may increase portfolio turnover rates, which results in
correspondingly greater commission expenses and transaction costs and may result
in certain tax consequences. See the SAI for further information regarding
these and other risks.
Successful use of forward currency contracts will depend on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change the Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that it will hedge at an
appropriate time.
New financial products and risk management techniques continue to be developed.
The Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect the
Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund has sold a security on a delayed-delivery basis,
the Fund does not participate in further gains or losses with respect to the
security. If the other party to the delayed-delivery transaction fails to
deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity, or could suffer a loss.
Policies and Restrictions:
The Fund may purchase securities in which it may invest on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security at
one price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or becomes
insolvent.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities that
are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale. Certain
restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable price.
Difficulty in selling securities may result in a loss or may be costly to the
Fund.
Policies and Restrictions: As a fundamental policy, the Fund may purchase
restricted foreign securities; however, the Fund may not purchase restricted
securities if as a result of such purchase more than 5% of the Fund's total
assets would consist of restricted securities.
The Fund may not purchase a security if, as a result, more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not invest in
the securities of any company if, as a result, it would then own more than 10%
of such company's voting securities or any class of such company's securities or
more than 5% of the Fund's total assets would be invested in that company.
As a fundamental policy, the Fund may not buy a security if, as a result, more
than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow only
from banks as a temporary measure as well as for extraordinary or emergency
purposes but only up to 5% of its total assets. See the SAI for further
information on the Fund's ability to borrow.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing the Fund's income. This practice could result in a
loss or a delay in recovering the Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, the Fund will not lend more
than 10% of its assets at any one time.
Other Instruments may include rights, warrants and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: The Fund may buy shares of investment companies that
do not redeem their shares subject to the restrictions in the SAI. As a
fundamental policy, the Fund may buy shares of other investment companies that
do not redeem their shares if it does not invest more than 10% of its total
assets in such shares, subject to the conditions in the SAI. However, the Fund
does not currently intend to invest more than 5% of its assets in such
securities.
Only 5% of the Fund's assets may be invested in companies that have not been in
continuous operation for at least three years (including predecessor companies).
The Fund may purchase warrants and rights to purchase securities if as a result
of such purchase no more than 5% of its assets would consist of warrants, rights
or a combination thereof.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares are
available for purchase by:
. participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100 or
more eligible employees and holds the shares in an omnibus account on the Fund's
records;
. banks, trust institutions and investment fund administrators investing for
their own accounts or for the accounts of their customers where such investments
for customer accounts are held in an omnibus account on the Fund's records;
. government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
. certain retirement plans and trusts for employees and account
representatives of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is calculated
every business day.
The offering price of a Class Y share (price to buy one Class Y share) is the
Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are sold
without a sales charge.
To purchase by wire, you must first obtain an account number by calling 1-800-
366-2520, then fax or mail a completed application to Waddell & Reed, Inc., P.
O. Box 29217, Shawnee Mission, Kansas 66201-9217, 913-236-5044. Instruct your
bank to wire the amount you wish to invest to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and Account
Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail the
check, along with your completed application, to Waddell & Reed, Inc., P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding with respect to that Class the value of the Fund's
investments, cash, and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Fund is open for business each day the New York Stock Exchange ("NYSE") is
open. The Fund normally calculates the net asset values of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may trade on
Saturdays or on customary U.S. national business holidays when the NYSE is
closed. Consequently, the NAV of Fund shares may be significantly affected on
days when the Fund does not price its shares and when you have no access to the
Fund.
When you place an order to buy shares, your order will be processed at the next
offering price calculated after your order is received and accepted. Note the
following:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be delayed
for up to ten days to ensure that your previous investment has cleared.
. The Fund does not issue certificates representing Class Y shares of the
Fund.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Fund reserve the right to discontinue
offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first twelve
months)
For other investors: Any
amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you wish
to invest, along with the account number and registration, to UMB Bank, n.a.,
ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name
and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed, Inc.
Mail the check along with a letter showing your account number, the account
registration and stating the fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-
9217.
Selling Shares
You can arrange to take money out of your Fund account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class Y
NAV.
To sell shares by telephone or fax: If you have elected this method in your
application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed account representative, or write a letter of
instruction with:
the name on the account registration,.
the Fund's name,.
. the Fund account number,
the dollar amount or number of shares to be redeemed, and.
any other applicable requirements listed in the table below..
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after your request is received and accepted by Waddell & Reed, Inc.
at its home office. Note the following:
Written requests for redemption must be in good order, which requires that.
if more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Fund may delay payment.
of redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares will
be delayed until the earlier of 10 days or the date the Fund is able to verify
that your purchase check has cleared and been honored.
. Redemptions may be suspended or payment dates postponed on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
. the request for redemption is made by a corporation, partnership or
fiduciary,
. the request for redemption is made by someone other than the owner of
record, or
. the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from a national bank, a federally
chartered savings and loan or a member firm of a national stock exchange or
other eligible guarantor in accordance with procedures of the Fund's transfer
agent. A notary public cannot provide a signature guarantee.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, exchange, transfer or
redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in the
United Group. You may exchange only into funds that are legally registered for
sale in your state of residence. Note that exchanges out of the Fund may have
tax consequences for you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Dividends, Distributions, and Taxes
Distributions
The Fund distributes substantially all of its net income and capital gains to
shareholders each year. Ordinarily, dividends are distributed from the Fund's
net investment income, which includes accrued interest, earned discount,
dividends and other income earned on portfolio assets less expenses,
semiannually in June and December. Net capital gains (and any net realized
gains from foreign currency transactions) ordinarily are distributed in
December. The Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on undistributed income and capital gains.
Distribution Options.
When you open an account, specify on your application how you want to receive
your distributions. The Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividends and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in Class Y
shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as a
regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gains and
net gains from certain foreign currency transactions) and net capital gains (the
excess of net long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are tax requirements that the Fund must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, the Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund will
be taxed. If your account is not a tax-deferred retirement account, you should
be aware of the following tax implications:
Taxes on distributions. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income whether received in cash or paid in
additional Fund shares. Distributions of the Fund's realized net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or reinvested in additional Fund shares and regardless of the
length of time you have owned your shares. The Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year. Under certain circumstances, the Fund may
elect to permit shareholders to take a credit or deduction for foreign income
taxes paid by the Fund. The Fund will notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. The Fund is required to withhold 31% of all dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares (which normally includes
any sales charge paid). An exchange of Fund shares for shares of any other fund
in the United Group generally will have similar tax consequences. In addition,
if you purchase Fund Class Y shares within thirty days before or after redeeming
other Fund Class Y shares at a loss, part or all of that loss will not be
deductible and will increase the basis of the newly purchased shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders. There may be
other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Fund
United International Growth Fund, Inc. is a mutual fund: an investment that
pools shareholders' money and invests it toward a specified goal. In technical
terms, the Fund is an open-end management investment company organized as a
corporation under Maryland law on November 6, 1974, as successor to a Delaware
corporation which commenced operations in 1970.
The Fund is governed by a Board of Directors, which has overall responsibility
for the management of its affairs. The majority of directors are not affiliated
with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares offered
by this Prospectus, the Fund has issued and outstanding Class A shares which are
offered by Waddell & Reed, Inc. through a separate Prospectus. Prior to July 4,
1995, the Fund offered only one class of shares to the public. Shares
outstanding on that date were designated as Class A shares. Class A shares are
subject to a sales charge on purchases but are not subject to redemption fees.
Class A shares are subject to a Rule 12b-1 fee at an annual rate of up to 0.25%
of the Fund's average net assets attributable to Class A shares. Additional
information about Class A shares may be obtained by calling 913-236-2000 or by
writing to Waddell & Reed, Inc. at the address on the inside back cover of the
Prospectus.
The Fund does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by
the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended ("1940 Act"), applies to the Fund, the directors
are required to call a meeting of shareholders for the purpose of voting upon
the question of removal of any director when requested in writing to do so by
the shareholders of record of not less than 10% of the Fund's outstanding
shares.
Each share (regardless of Class) has one vote. All shares of the Fund vote
together as a single Class, except as to any matter for which a separate vote of
any Class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular Classes, in which case only the
shareholders of the affected Classes are entitled to vote, each as a separate
Class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board of
Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to TMK/United Funds, Inc.
since that fund's inception, until January 8, 1992, when it assigned its duties
as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992, Torchmark
Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. since
each commenced operations in February 1993 and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995.
Mark L. Yockey is primarily responsible for the day-to-day management of the
Fund. Mr. Yockey has held his Fund responsibilities since February 1990. He is
Vice President of WRIMCO, Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. Mr. Yockey
has served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. and its successor, WRIMCO, since January 1990 and has been an
employee of Waddell & Reed, Inc. and its successor, WRIMCO, since November 1986.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the other funds in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc., and serves as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Fund and processes the payments of dividends. Waddell & Reed
Services Company also acts as agent ("Accounting Services Agent") in providing
bookkeeping and accounting services and assistance to the Fund and pricing daily
the value of its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company and an indirect subsidiary of United Investors
Management Company, a holding company, and Torchmark Corporation, a holding
company.
WRIMCO places transactions for the portfolio of the Fund and in doing so may
consider sales of shares of the Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a specific
fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close of
business each day at the annual rate of .30 of 1% of its net assets. The group
fee is a pro rata participation based on the relative net asset size of the Fund
in the group fee computed each day on the combined net asset values of all the
funds in the United Group at the annual rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollarsFor Each
in millions) Level
- ------------ -------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000.36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $10.5 billion as of June 30, 1994. Management fees for the fiscal
year ended June 30, 1994 were 0.72% of the Fund's average net assets, which
during that period consisted only of the Fund's Class A shares.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class Y
shares, the Fund pays the Shareholder Servicing Agent a monthly fee based on the
average daily net assets of the Class for the preceding month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be, but
the Fund may have a high portfolio turnover. A higher turnover will increase
transaction and commission costs and could generate taxable income or loss.
<PAGE>
United International Growth Fund, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing
Independent AccountantsAgent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913)236-2000
P. O. Box 29217
Shawnee Mission, KansasAccounting Services
66201-9217 Agent
913) 236-2000 Waddell & Reed Services
Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
United International Growth Fund, Inc.
Class Y Shares
PROSPECTUS
July 4, 1995
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP2002-Y(7-95)
printed on recycled paper
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
July 4, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus ("Prospectus")
for the Class A shares or the Class Y shares, as applicable, of United
International Growth Fund, Inc. (the "Fund") dated July 4, 1995, which may be
obtained from the Fund or its underwriter, Waddell & Reed, Inc., at the address
or telephone number shown above.
TABLE OF CONTENTS
Performance Information............................. 2
Investment Objectives and Policies.................. 3
Investment Management and Other Services............ 19
Purchase, Redemption and Pricing of Shares.......... 24
Directors and Officers.............................. 37
Payments to Shareholders............................ 43
Taxes .............................................. 44
Portfolio Transactions and Brokerage................ 47
Other Information .................................. 49
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return information and/or performance rankings in
advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment and, for Class A shares, from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be reinvested
in shares of the applicable Class at net asset value for the Class as of the day
the dividend or distribution is paid. No sales load is charged on reinvested
dividends or distributions on Class A shares. The formula used to calculate the
total return for a particular Class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that Class.
The average annual total return quotations for Class A shares as of
December 31, 1994, which is the most recent balance sheet included in this SAI,
for the periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from January 1, 1994 to
December 31, 1994: -4.05% 1.81%
Five-year period from January 1, 1990 to
December 31, 1994: 7.40% 8.68%
Ten-year period from January 1, 1985 to
December 31, 1994: 14.16% 14.84%
Prior to July 4, 1995, the Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available for certain
institutional investors.
The Fund may also quote unaveraged or cumulative total return for a Class
which reflects the change in value of an investment in that Class over a stated
period of time. Cumulative total return will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. Each Class of the Fund may also compare its performance to that of
other selected mutual funds or selected recognized market indicators such as the
Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average.
Performance information may be quoted numerically or presented in a table, graph
or other illustration.
All performance information that the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities - General
The Fund may invest in securities including common stock, preferred stock
and debt securities, as described in the Prospectus. These securities may
include the following securities from time to time.
The Fund may purchase debt securities whose principal amount at maturity is
dependent upon the performance of a specified equity security. The issuer of
such debt securities, typically an investment banking firm, is unaffiliated with
the issuer of the equity security to whose performance the debt security is
linked. Equity-linked debt securities differ from ordinary debt securities in
that the principal amount received at maturity is not fixed, but is based on the
price of the linked equity security at the time the debt security matures. The
performance of equity-linked debt securities depends primarily on the
performance of the linked equity security and may also be influenced by interest
rate changes. In addition, although the debt securities are typically adjusted
for diluting events such as stock splits, stock dividends and certain other
events affecting the market value of the linked equity security, the debt
securities are not adjusted for subsequent issuances of the linked equity
security for cash. Such an issuance could adversely affect the price of the
debt security. In addition to the equity risk relating to the linked equity
security, such debt securities are also subject to credit risk with regard to
the issuer of the debt security. In general, however, such debt securities are
less volatile than the equity securities to which they are linked.
The Fund may also invest in a type of convertible preferred stock that pays
a cumulative, fixed dividend that is senior to, and expected to be in excess of,
the dividends paid on the common stock of the issuer. At the mandatory
conversion date, the preferred stock is converted into not more than one share
of the issuer's common stock at the "call price" that was established at the
time the preferred stock was issued. If the price per share of the related
common stock on the mandatory conversion date is less than the call price, the
holder of the preferred stock will nonetheless receive only one share of common
stock for each share of preferred stock (plus cash in the amount of any accrued
but unpaid dividends). At any time prior to the mandatory conversion date, the
issuer may redeem the preferred stock upon issuing to the holder a number of
shares of common stock equal to the call price of the preferred stock in effect
on the date of redemption divided by the market value of the common stock, with
such market value typically determined one or two trading days prior to the date
notice of redemption is given. The issuer must also pay the holder of the
preferred stock cash in an amount equal to any accrued but unpaid dividends on
the preferred stock. This convertible preferred stock is subject to the same
market risk as the common stock of the issuer, except to the extent that such
risk is mitigated by the higher dividend paid on the preferred stock. The
opportunity for equity appreciation afforded by an investment in such
convertible preferred stock, however, is limited, because in the event the
market value of the issuer's common stock increases to or above the call price
of the preferred stock, the issuer may (and would be expected to) call the
preferred stock for redemption at the call price. This convertible preferred
stock is also subject to credit risk with regard to the ability of the issuer to
pay the dividend established upon issuance of the preferred stock. Generally,
convertible preferred stock is less volatile than the related common stock of
the issuer.
Specific Securities and Investment Practices
Foreign Securities and Currency
Waddell & Reed Investment Management Company ("WRIMCO"), the Fund's
investment manager, believes that there are investment opportunities as well as
risks in investing in foreign securities. Individual foreign economies may
differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual foreign
companies may also differ favorably or unfavorably from domestic companies in
the same industry. Foreign currencies may be stronger or weaker than the U.S.
dollar or than each other. WRIMCO believes that the Fund's policy of investing
a substantial portion of its assets abroad will enable it to take advantage of
these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage).
The Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange ("NYSE")
and securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less government
regulation of stock exchanges, brokers and listed companies than in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments which could adversely affect investments
in securities of issuers located in those countries. If it should become
necessary, the Fund would normally encounter greater difficulties in commencing
a lawsuit against the issuer of a foreign security than it would against a U. S.
issuer.
As an operating policy, under normal market conditions, the Fund will have
at least 65% of its assets invested in at least three different countries
outside the U.S.
Restricted Securities
The Fund may purchase foreign restricted securities. However, it will not
purchase restricted securities if as a result of such purchase more than 5% of
its total assets would consist of restricted securities. These are fundamental
policies that may only be changed with shareholder approval. Restricted
securities are securities that are subject to legal or contractual restrictions
on resale because they are not registered under the Securities Act of 1933, as
amended ("1933 Act").
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the 1933 Act, or
in a registered public offering. Where registration is required, the Fund may
be obligated to pay all or part of the registration expense and a considerable
period may elapse between the time it decides to seek registration and the time
the Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when it decided to
seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments" below.
Warrants and Rights
The Fund may purchase warrants or rights to purchase securities ("rights")
provided that the Fund will not purchase warrants or rights if as a result of
such purchase more than 5% of its total assets would consist of warrants, rights
or a combination thereof, not including warrants or rights acquired in units or
attached to other securities. This is a fundamental policy that may only be
changed with shareholder approval. Certain states may impose a lower percentage
limit on investments in warrants and rights.
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
its securities. If the Fund does this, the borrower pays the Fund an amount
equal to the dividends or interest on the securities that the Fund would have
received if it had not loaned the securities. The Fund also receives additional
compensation.
Any securities loans that the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash or securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("U.S. Government
Securities") or bank letters of credit, at least equal in value to the market
value of the securities loaned on each day that the loan is outstanding. If the
market value of the loaned securities exceeds the value of the collateral, the
borrower must add more collateral so that it at least equals the market value of
the securities loaned. If the market value of the securities decreases, the
borrower is entitled to return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that the Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by the Fund if the demand meets the terms of the letter. The Fund's
right to make this demand secures the borrower's obligations to it. The terms
of any such letters and the creditworthiness of the banks providing them (which
might include the Fund's custodian bank) must be satisfactory to the Fund.
WRIMCO, subject to the direction and control of the Board of Directors, has
adopted additional rules concerning lending of securities that may be changed
without shareholder vote. At present, under these rules, the Fund will lend
securities only to creditworthy broker-dealers and financial institutions. The
Fund will make loans only under rules of the NYSE, which presently require the
borrower to give the securities back to the Fund within five business days after
the Fund gives notice to do so. WRIMCO will evaluate the creditworthiness of
the borrower. If the Fund loses its voting rights on securities loaned, it will
have the securities returned to it in time to vote them if a material event
affecting the investment is to be voted on. The Fund may pay reasonable
finder's, administrative and custodian fees in connection with loans of
securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in collateral should the
borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules which may be changed without shareholder vote as to
(i) whom securities may be loaned; (ii) the investment of cash collateral; or
(iii) voting rights.
The Fund will not loan more than 10% of its assets at any one time. There
may be risks of delay in receiving additional collateral from the borrower if
the market value of the securities loaned goes up, risks of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security at
a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays and
expenses in liquidating the underlying securities or other collateral, decline
in their value or loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans, i.e., the
value of the securities subject to the repurchase agreement, which will be held
by the Fund's custodian bank or by a third party that qualifies as a custodian
under section 17(f) of the Investment Company Act of 1940, as amended ("1940
Act"), is and, during the entire term of the agreement, will remain at least
equal to the value of the loan, including the accrued interest earned thereon.
Repurchase agreements are entered into only with those entities approved by
WRIMCO on the basis of criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold are subject to market fluctuation; their value
may be less or more when delivered than the purchase price paid or received.
For example, delivery to the Fund and payment by the Fund in the case of a
purchase by it, or delivery by the Fund and payment to it in the case of a sale
by the Fund, may take place a month or more after the date of the transaction.
The Fund will enter into when-issued or delayed-delivery transactions in order
to secure what is considered to be an advantageous price and yield at the time
of entering into the transaction. No interest accrues to the Fund until
delivery and payment is completed. When the Fund makes a commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of securities in determining its
net asset value per share. The securities so sold by the Fund on a delayed-
delivery basis are also subject to market fluctuation; their value when the Fund
delivers them may be more than the purchase price the Fund receives. When the
Fund makes a commitment to sell securities on a delayed-delivery basis, it will
record the transaction and thereafter value the securities at the sale price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons.
If the Fund remains substantially fully invested at the time when-issued or
delayed-delivery purchases are outstanding, the purchases may result in a form
of leverage. The Fund will hold aside or segregate cash or other securities,
other than those purchased on a when-issued or delayed-delivery basis, at least
equal to the amount it will have to pay on the settlement date; these other
securities may, however, be sold at or before the settlement date to pay the
purchase price of the when-issued or delayed-delivery securities.
Illiquid Investments
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that due to their possible limited liquidity, the Fund
may not make certain investments if as a result more than 10% of its net assets
would consist of such investments. The investments currently considered
illiquid include: (i) repurchase agreements not terminable within seven days;
(ii) restricted securities not determined to be liquid pursuant to guidelines
established by the Fund's Board of Directors; and (iii) securities for which
market quotations are not readily available.
Securities of Other Investment Companies
As a fundamental policy, the Fund may not buy shares of other investment
companies that redeem their shares. The Fund can buy shares of investment
companies that do not redeem their shares if it does so in a regular transaction
in the open market and then not more than one tenth (i.e., 10%) of its total
assets are invested in these shares. The Fund may also buy these shares as part
of a merger or consolidation.
The Fund does not currently intend to invest more than 5% of its assets in
such securities. In order to comply with regulations of the State of Ohio, for
so long as such regulations are in effect and applicable to the Fund, the Fund
will not invest in securities of other investment companies, except by purchase
in the open market where no commission or profit to a sponsor or dealer results
from the purchase other than the customary broker's commission, or except when
the purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
Options and Forward Currency Contracts
As discussed in the Prospectus, WRIMCO may use call options and forward
currency contracts ("Financial Instruments") to attempt to hedge the Fund's
portfolio. The Fund may use certain Financial Instruments for speculative
purposes.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that the
Fund owns or intends to acquire.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and various state regulatory authorities. In addition, the
Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Taxes."
In addition to the strategies and risks described below and in the
Prospectus, WRIMCO expects to discover additional opportunities in connection
with written call options and forward currency contracts. These new
opportunities may become available as WRIMCO develops new techniques, as
regulatory authorities broaden the range of permitted transactions and as new
options and forward currency contracts or other techniques are developed.
WRIMCO may utilize these opportunities to the extent that they are consistent
with the Fund's investment goals and permitted by the Fund's investment
limitations and applicable regulatory authorities. The Fund's Prospectus or
Statement of Additional Information will be supplemented to the extent that new
products or techniques involve materially different risks than those described
below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities and currency markets,
which requires different skills than predicting changes in the prices of
individual securities. There can be no assurance that any particular strategy
will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded.
Because there are a limited number of types of exchange-traded options
contracts, it is likely that the standardized contracts available will not match
the Fund's current or anticipated investments exactly. The Fund may invest in
options contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options position will not track the performance of the
Fund's other investments.
Options prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments match the Fund's investments
well. Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options markets and the securities markets or
from imposition of daily price fluctuation limits or trading halts. The Fund
may sell options contracts with a greater or lesser value than the securities it
wishes to hedge in order to attempt to compensate for differences in volatility
between the contract and the securities, although this may not be successful in
all cases. If price changes in the Fund's options positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because WRIMCO projected a decline in the
price of a security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such case, the
Fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets as
"cover" or maintain segregated accounts when it takes positions in Financial
Instruments involving obligations to third parties. If the Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts until the position expired or
matured. These requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to close out a position in a Financial Instrument
prior to expiration or maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and willingness of the
other party to the transaction ("contra party") to enter into a transaction
closing out the position. Therefore, there is no assurance that any position
can be closed out at a time and price that is favorable to the Fund.
Cover. Transactions using Financial Instruments expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies or other options or forward contracts, or (2) cash, receivables and
short-term debt securities, with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. The
Fund will comply with SEC guidelines regarding cover for these instruments and
will, if the guidelines so require, set aside cash, U.S. Government Securities
or other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount as determined daily on a mark-to-market
basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets for use as cover or to be held in segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Options. As discussed in the Prospectus, the Fund may write (sell) listed
covered call options. Writing call options can enable the Fund to enhance
income by reason of the premiums paid by the purchasers of such options. As a
fundamental policy, the Fund may write call options only if (i) such calls are
listed on a domestic securities exchange; (ii) when any such call is written and
at all times prior to a closing purchase transaction as to such call, or its
lapse or exercise, the Fund owns the securities that are subject to the call or
has the right to acquire such securities without the payment of further
consideration; and (iii) when any such call is written, not more than 10% of the
Fund's total assets would be subject to calls. The Fund may purchase calls only
to effect a closing purchase transaction as to any call written in accordance
with the foregoing.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security at less than its market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions.
The Fund may effectively terminate its obligation under a call option it
has written by entering into a closing transaction. The Fund may terminate its
obligation under a call option that it had written by purchasing an identical
call option; this is known as a closing purchase transaction. Closing
transactions permit the Fund to realize profits or limit losses on an option
position prior to its exercise or expiration.
Risks of Options on Securities. The Fund may only write exchange-traded
options. Exchange-traded options in the United States are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. The Fund intends to write
only those exchange-traded options for which there appears to be a secondary
market. There can be no assurance that such a market will exist at any
particular time. The inability to enter into a closing purchase transaction for
a covered call option written by the Fund could cause material losses because
the Fund would be unable to sell the investment used as cover for the written
option until the option expires or is exercised.
The Fund's options activities may affect its turnover rate and brokerage
commission payments. The exercise of calls written by the Fund may cause it to
sell related investments, thus increasing its turnover rate. Once the Fund has
received an exercise notice on a call option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver the underlying securities at the exercise price. The Fund will pay
a brokerage commission each time it buys or sells a call. Such commissions may
be higher than those that would apply to direct purchases or sales.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. Such transactions may serve as long
hedges; for example, the Fund may purchase a forward currency contract to lock
in the U.S. dollar price of a security denominated in a foreign currency that
the Fund intends to acquire. Forward currency contract transactions may also
serve as short hedges; for example, the Fund may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security, dividend or interest payment denominated in a
foreign currency.
The Fund may also use forward currency contracts to hedge against a decline
in the value of existing investments denominated in foreign currency. For
example, if the Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutsche Marks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
The Fund also may use forward currency contracts for "cross-hedging."
Under this strategy, the Fund would increase its exposure to foreign currencies
that WRIMCO believes might rise in value relative to the U.S. dollar, or shift
its exposure to foreign currency fluctuations from one country to another. For
example, if the Fund owned securities denominated in a foreign currency and
WRIMCO believed that currency would decline relative to another currency, it
might enter into a forward currency contract to sell an appropriate amount of
the first foreign currency, with payment to be made in the second foreign
currency.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the contra
party to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.
Purchasers and sellers of forward currency contracts can enter into
offsetting closing transactions by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Secondary markets
generally do not exist for forward currency contracts, with the result that
closing transactions generally can be made for forward currency contracts only
by negotiating directly with the contra party. Thus, there can be no assurance
that the Fund will in fact be able to close out a forward currency contract at a
favorable price prior to maturity. In addition, in the event of insolvency of
the contra party, the Fund might be unable to close out a forward currency
contract at any time prior to maturity. In either event, the Fund would
continue to be subject to market risk with respect to the position, and would
continue to be required to maintain a position in securities denominated in the
foreign currency or to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Fund might need to purchase
or sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, WRIMCO believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.
Limitations on the Use of Forward Currency Contracts. The Fund may enter
into forward currency contracts only if, thereafter, it does not have more than
15% of the value of its assets committed to the consummation of all of such
contracts. The Fund will not enter into forward currency contracts or maintain
a net exposure to such contracts where the consummation of the forward contracts
would obligate the Fund to deliver an amount of foreign currency in excess of
the value of the Fund's portfolio securities or other assets denominated in that
currency. All of the policies stated in this paragraph are fundamental
policies.
Risk Factors of High-Yield Investing
As an operating (i.e., nonfundamental) policy, the Fund does not intend to
invest more than 5% of its assets in non-investment grade debt securities.
Lower-quality debt securities ("junk bonds") are considered to be speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. The market prices of these securities may fluctuate
more than high-quality securities and may decline significantly in periods of
general economic difficulty.
While the market for high-yield, high-risk corporate debt securities has
been in existence for many years and has weathered previous economic downturns,
the 1980s brought a dramatic increase in the use of such securities to fund
highly leveraged corporate acquisitions and restructurings. Past experience may
not provide an accurate indication of the future performance of the high-yield,
high-risk bond market, especially during periods of economic recession. The
market for lower-rated debt securities may be thinner and less active than that
for higher-rated debt securities, which can adversely affect the prices at which
the former are sold. Adverse publicity and changing investor perceptions may
decrease the values and liquidity of lower-rated debt securities, especially in
a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for which
more external sources of quotations and last sale information are available.
Since the risk of default is higher for lower-rated debt securities, WRIMCO's
research and credit analysis are an especially important part of managing
securities of this type held by the Fund. WRIMCO continuously monitors the
issuers of lower-rated debt securities in its portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments.
The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield debt securities, certain risks are associated with using credit
ratings. Credit ratings evaluate the safety of principal and interest payments,
not market value risk. Credit ratings of individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has been
changed.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and together with certain
restrictions described in the Prospectus, cannot be changed without shareholder
approval. Under these additional restrictions, the Fund may not:
(i) Buy real estate nor any nonliquid interests in real estate investment
trusts;
(ii) Buy the securities of any company if it would then own more than 10% of
its voting securities or any class of its securities; or buy the
securities of any company if more than 5% of the Fund's total assets
(valued at market value) would then be invested in that company; or buy
the securities of companies in any one industry if more than 25% of the
Fund's total assets would then be in companies in that industry;
(iii) Buy shares of other investment companies which redeem their shares. The
Fund can buy shares of investment companies which do not redeem their
shares if it does it in a regular transaction in the open market and
then does not have more than one tenth (i.e., 10%) of its total assets
in these shares. The Fund may also buy these shares as part of a merger
or consolidation;
(iv) Make loans other than certain limited types of loans described herein;
the Fund can buy debt securities which have been sold to the public; it
can also lend its portfolio securities (see "Lending Securities" above)
or, except as provided above, enter into repurchase agreements (see
"Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities if the Fund's Directors or officers
or certain others own too much of the same securities; if any one of
these people owns more than one two-hundredths (i.e., .5 of 1%) of the
shares of a company and if the people who own that much or more own one
twentieth (i.e., 5%) of that company's shares, the Fund cannot buy that
company's shares or continue to own them;
(vii) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(viii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions;
(ix) Engage in the underwriting of securities or invest in restricted
securities, except restricted foreign securities. However, the Fund
will not purchase restricted securities if as a result of such purchase
more than 5% of its total assets would consist of restricted securities.
Restricted securities are securities which are subject to legal or
contractual restrictions on resale;
(x) Purchase calls, which are rights to buy securities, or purchase puts,
which are rights to sell securities. The Fund also may not write (i.e.,
sell) any puts or calls or combinations of the two except that it may
write certain covered call options and purchase calls to close out its
position in a call which it has written (see "Call Options" above);
(xi) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets; this does not prohibit the escrow
arrangements contemplated by the writing of covered call options. The
Fund may borrow money from banks as a temporary measure or for
extraordinary or emergency purposes but only up to 5% of its total
assets;
(xii) Buy commodities or commodity contracts other than forward currency
contracts and foreign currency.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares. For the fiscal
year ended June 30, 1994, the Fund's portfolio turnover rate was 83.76%. For
the fiscal year ended June 30, 1993, its portfolio turnover rate was 94.22%.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned the
Management Agreement and all related investment management duties (and related
professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992 when it assigned its duties as investment
manager for these funds (and the related professional staff) to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992, Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. since they each commenced operations in
February 1993 and United Asset Strategy Fund, Inc. since it commenced operations
in March 1995. Waddell & Reed, Inc. serves as principal underwriter for the
investment companies in the United Group of Mutual Funds and Waddell & Reed
Funds, Inc. and serves as distributor for TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the Fund
pays WRIMCO a fee as described in the Prospectus.
Prior to the above-described assignment from Waddell & Reed, Inc. to
WRIMCO, all fees were paid to Waddell & Reed, Inc. The management fees paid to
Waddell & Reed, Inc. or WRIMCO, as the case may be, during the fiscal years
ended June 30, 1994, 1993 and 1992 were $3,451,650, $2,282,090 and $2,149,370,
respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A shares
the Fund pays the Agent a monthly fee of $1.0208 for each shareholder account
that 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. For Class Y shares, the Fund pays the agent a monthly fee
equal to one-twelfth of .15 of 1% of the average daily net assets of that Class
for the preceding month. The Fund also pays certain out-of-pocket expenses of
the Agent, including long distance telephone communications costs; microfilm and
storage costs for certain documents; forms, printing and mailing costs; and
costs of legal and special services not provided by Waddell & Reed, Inc., WRIMCO
or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent 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 Fund
------------------------- ------------------
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
Fees paid to the Agent for the fiscal years ended June 30, 1994, 1993 and
1992 were $63,333, $50,000 and $50,000, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay. If these expense limitations are exceeded, WRIMCO is required
to reduce the amount by which these expenses exceed the expense limitation. The
State of California has granted the Fund a variance from the expense limitation
to allow the Fund to exclude from its aggregate annual expenses for purposes of
calculating the expense limitation, the number of basis points by which its
custodian fee ratio exceeds the average custodial fee ratio for domestic
securities incurred by the other equity funds in the United Group of Mutual
Funds. Other expenses excluded from aggregate annual expenses include interest,
taxes, brokerage commissions and extraordinary expenses such as litigation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with WRIMCO and its affiliates. The
Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for Class A shares for the fiscal years ended June 30,
1994, 1993 and 1992 were $5,013,005, $2,282,699 and $2,475,410, respectively,
and the amounts retained by Waddell & Reed, Inc. for each fiscal year were
$2,224,663, $1,069,053 and $1,344,608, respectively.
A major portion of the sales charge for Class A shares is paid to the
account representatives and managers of Waddell & Reed, Inc. Waddell & Reed,
Inc. may compensate its account representatives as to purchases for which there
is no sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan for Class A shares(the "Plan") adopted by the Fund
pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay Waddell & Reed,
Inc., the principal underwriter for the Fund, a fee not to exceed .25% of the
Fund's average annual net assets attributable to Class A shares, paid monthly,
to reimburse Waddell & Reed, Inc. for its costs and expenses in connection with
the provision of personal services to Class A shareholders of the Fund and/or
maintenance of Class A shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered account
representatives, sales managers and/or other appropriate personnel in providing
personal services to Class A shareholders of the Fund and/or maintaining Class A
shareholder accounts; increasing services provided to Class A shareholders of
the Fund by office personnel located at field sales offices; engaging in other
activities useful in providing personal service to Class A shareholders of the
Fund and/or maintenance of Class A shareholder accounts; and in compensating
broker-dealers who may regularly sell Class A shares of the Fund, and other
third parties, for providing shareholder services and/or maintaining shareholder
accounts with respect to Class A shares. Fees paid (or accrued) with respect to
Class A shares as service fees by the Fund for the fiscal year ended June 30,
1994 were $411,578.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by the affected shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding Class A shares of the Fund, and (iv)
while the Plan remains in effect, the selection and nomination of the Directors
who are Plan Directors will be committed to the discretion of the Plan
Directors.
Custodial and Auditing Services
The Fund's Custodian is UMB Bank, n.a., Kansas City, Missouri. In general,
the Custodian is responsible for holding the Fund's cash and securities. The
Fund may place and maintain its foreign securities and cash with a foreign
custodian in accordance with Rule 17f-5 of the 1940 Act. Price Waterhouse LLP,
Kansas City, Missouri, the Fund's independent accountants, audits the Fund's
financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each Class of the shares of the Fund is the value of
the assets of that Class, less the Class's liabilities, divided by the total
number of outstanding shares of that Class.
Class A shares of the Fund are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup as of
December 31, 1994 was as follows:
Net asset value per Class A share (Class A net assets divided by Class A
shares outstanding) ............................ $8.24
Add: selling commission (5.75% of offering price) .50
-----
Maximum offering price per Class A share (Class A
net asset value divided by 94.25%) ............. $8.74
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a confirmation after your
purchase which will indicate how many shares you have purchased. Shares are
normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are computed once on each
day that the NYSE is open for trading as of the later of the close of the
regular session of the NYSE (ordinarily, 4:00 P.M. Eastern time) or the close of
the regular session of any other securities or commodities exchange on which an
option or future held by the Fund is traded. The NYSE annually announces the
days on which it will not be open for trading. The most recent announcement
indicates that it will not be open on the following days: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every
business day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price which is the mean
between the closing bid and asked prices. Other securities which are traded
over-the-counter are priced using NASDAQ (National Association of Securities
Dealers Automated Quotations), which provides information on bid and asked
prices quoted by major dealers in such stocks. Restricted foreign securities
for which market quotations are readily available are valued at market value.
Bonds, other than convertible bonds, are valued using a pricing system provided
by a major dealer in bonds. Convertible bonds are valued using this pricing
system only on days when there is no sale reported. Short-term debt securities
are valued at amortized cost, which approximates market. Warrants and rights to
purchase securities are valued at market value. When market quotations are not
readily available, securities and other assets are valued at fair value as
determined in good faith under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
When the Fund writes a call, an amount equal to the premium received is
included in the Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the call.
If a call the Fund wrote is exercised, the proceeds received on the sale of the
related investment are increased by the amount of the premium the Fund received.
If a call written by the Fund expires, it has a gain in the amount of the
premium; if it enters into a closing purchase transaction, it will have a gain
or loss depending on whether the premium was more or less than the cost of the
closing transaction.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A minimum
initial investment of $25 is applicable to purchases made through payroll
deduction for or by employees of Waddell & Reed, Inc., WRIMCO, their affiliates
or certain retirement plan accounts. Except with respect to certain exchanges
and automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount.
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A shares only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For the
purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Internal Revenue Code of
1986, as amended (the "Code"), salary reduction plan account provided that
such purchases are subject to a sales charge (see "Net Asset Value
Purchases"), tax sheltered annuity account ("TSA") or Keogh plan account,
provided that the individual and spouse are the only participants in the
Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens a UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. (If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.)
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee benefit
plan of an incorporated business will be grouped. (A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code.) All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. (An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer.)
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan the shares held under the plan may be combined with the additional purchase
only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement is accepted by Waddell &
Reed, Inc. Each purchase made from time to time under the Statement is treated
as if the purchaser were buying at one time the total amount which he or she
intends to invest. The sales charge applicable to all purchases of Class A
shares made under the terms of the statement will be the sales charge in effect
on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement is
accepted by Waddell & Reed, Inc. of $15,000; H's wife, W, has an
account in her own name invested in another fund in the United Group
which charges the same sales load as the Fund, with a net asset value
as of the date of acceptance of the Statement of $10,000; H needs to
invest $75,000 in Class A shares over the 13-month period in order to
qualify for the reduced sales load applicable to a purchase of
$100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement only if the contractual
plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to 5%
of the purchase required under the Statement will be held "in escrow." If a
purchaser does not, during the period covered by the Statement, invest the
amount required to qualify for the reduced sales charge under the terms of the
Statement, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge owed on
purchases of Class A shares made under a Statement which is not completed will
be collected by redeeming part of the shares purchased under the Statement and
held "in escrow" unless the purchaser makes payment of this amount to Waddell &
Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.
Statements of Intention are not available for purchases made under a
simplified employee pension plan ("SEP") where the employer has elected to have
all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held, in any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject to
a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that are subject to a "reduced" sales charge as described in the prospectus of
each fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of obtaining
the lower sales charge which applies to large purchases, purchases in a fund in
the United Group of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased at
net asset value by the Directors and officers of the Fund, employees of Waddell
& Reed, Inc., employees of their affiliates, account representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and account representative.
"Child" includes stepchild; "parent" includes stepparent. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases of Class A shares
in any tax qualified retirement plan under which the eligible purchaser is the
sole participant may also be made at net asset value. Trusts under which the
grantor and the trustee or a co-trustee are each an eligible purchaser are also
eligible for net asset value purchases of Class A shares. "Employees" includes
retired employees. A retired employee is an individual separated from service
from Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Account representatives" includes retired account representatives.
A "retired account representative" is any account representative who was, at the
time of separation from service from Waddell & Reed, Inc., a Senior Account
Representative. A custodian under the Uniform Gifts (or Transfers) to Minors
Act purchasing for the child or grandchild of any employee or account
representative may purchase Class A shares at net asset value whether or not the
custodian himself is an eligible purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus, there are a number of instances
in which the Fund's Class A shares are sold or issued on a basis other than the
maximum public offering price, that is, the net asset value plus the highest
sales charge. Some of these relate to lower or eliminated sales charges for
larger purchases of Class A shares, whether made at one time or over a period of
time as under a Statement of Intention or right of accumulation. See the table
of sales charges in the Prospectus. The reasons for these quantity discounts
are, in general, that (i) they are traditional and have long been permitted in
the industry and are therefore necessary to meet competition as to sales of
shares of other funds having such discounts; (ii) certain quantity discounts are
required by rules of the National Association of Securities Dealers, Inc. (as
are elimination of sales charges on the reinvestment of dividends and
distributions); and (iii) they are designed to avoid an unduly large dollar
amount of sales charge on substantial purchases in view of reduced selling
expenses. Quantity discounts are made available to certain related persons for
reasons of family unity and to provide a benefit to tax-exempt plans and
organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted in the 1940 Act from the otherwise applicable restrictions as to what
sales charge must be imposed. In no case in which there is a reduced or
eliminated sales charge are the interests of existing Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class A shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). The Service is
available not only for Class A shares of the Fund but also for corresponding
shares of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of Class A shares while a withdrawal
program is in effect as this would result in duplication of sales charges.
To qualify for the Service, you must have invested at least $10,000 in
Class A or corresponding shares which you still own of any of the funds in the
United Group; or, you must own Class A or corresponding shares having a value of
at least $10,000. The value for this purpose is not the net asset value but the
value at the offering price, i.e., the net asset value plus the sales charge.
To start the Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the Plan
Custodian for use of their services.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for the
Service are reinvested in additional Class A shares. All payments are made by
redeeming shares, which may involve a gain or loss for tax purposes. To the
extent that payments exceed dividends and distributions, the number of Class A
shares you own will decrease. When all of the shares in an account are
redeemed, you will not receive any further payments. Thus, the payments are not
an annuity or an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed. You can change to any one of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. You can at any time redeem part
or all of the shares in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges.
Once a sales charge has been paid on shares of a fund in the United Group,
these shares and any shares added to them from reinvestment of dividends or
distributions may be freely exchanged for corresponding shares of another fund
in the United Group. The shares you exchange must be worth at least $100 or you
must already own shares of the fund in the United Group into which you want to
exchange.
You may exchange corresponding shares you own in another fund in the United
Group for Class A shares of the Fund without charge if (i) a sales charge was
paid on these shares, or (ii) the shares were received in exchange for shares
for which a sales charge was paid, or (iii) the shares were acquired from
reinvestment of dividends and distributions paid on such shares. There may have
been one or more such exchanges so long as a sales charge was paid on the shares
originally purchased. Also, shares acquired without a sales charge because the
purchase was $2 million or more will be treated the same as shares on which a
sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Corresponding shares of any of these funds may be
exchanged for Class A shares of the Fund only if (i) you have received those
shares as a result of one or more exchanges of shares on which a sales charge
was originally paid, or (ii) the shares have been held from the date of original
purchase for at least six months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of corresponding shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of the Fund or any other
fund in the United Group. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among the Class A or corresponding
shares of different funds in the United Group so long as each fund receives a
value of at least $25. Minimum initial investment and minimum balance
requirements apply to such automatic exchange service.
You may redeem your Class A share4s of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges.
Class Y shares of the Fund may be exchanged for Class Y shares of any other
fund in the United Group.
General Exchange Information.
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be set
up as a funding vehicle for a retirement plan. For individual taxpayers meeting
certain requirements, Waddell & Reed, Inc. offers prototype documents for the
following retirement plans. All of these plans involve investment in shares of
a Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures. Redemption
payments are made within seven days unless delayed because of emergency
conditions determined by the SEC, when the NYSE is closed other than for
weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemptions of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide it
was not a good idea, you may reinvest. If Class A shares of the Fund are then
being offered, you can put all or part of your redemption payment back into
Class A shares of the Fund without any sales charge at the net asset value next
determined after you have returned the amount. Your written request to do this
must be received within 30 days after your redemption request was received. You
can do this only once as to Class A shares of the Fund. You do not use up this
privilege by redeeming Class A shares to invest the proceeds at net asset value
in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer of the Fund is given below. Each of the persons listed
through and including Mr. Wright is a member of the Fund's Board of Directors.
The other persons are officers but not members of the Board of Directors. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc. Each of the Fund's Directors is
also a Director of each of the other funds in the Fund Complex and each of the
Fund's officers is also an officer of one or more of the funds in the Fund
Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
Suite 260
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
Mark L. Yockey
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Analyst for the Treasury Department of the state
of Michigan.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, four of the Fund's Directors may be deemed to
be "interested persons" as defined in the 1940 Act of its underwriter, Waddell &
Reed, Inc., or of WRIMCO. The Directors who may be deemed to be interested
persons are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no authority
or responsibility with respect to management of the Fund. Currently, no person
serves as Director Emeritus.
The Funds in the United Group (with the exception of United Asset Strategy
Fund, Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. pay to each
Director a total of $40,000 per year, plus $1,000 for each meeting of the Board
of Directors attended (prior to January 1, 1995, the fee was $500 for each
meeting of the Board of Directors attended) and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors' meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United Group (with
the exception of United Asset Strategy Fund, Inc.), TMK/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended June 30, 1994, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 1,619 0 43,000
Dodds I. Buchanan 1,619 0 43,000
Jay B. Dillingham 1,619 0 43,000
John F. Hayes 1,619 0 43,000
Glendon E. Johnson 1,586 0 42,000
William T. Morgan 488 0 10,500
Doyle Patterson 1,619 0 43,000
Frederick Vogel III 1,619 0 43,000
Paul S. Wise 1,600 0 42,500
Leslie S. Wright 1,596 0 42,500
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of April 30, 1995, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a Class of shares of the Fund, other than payments when you
redeem your shares. The first source is the Fund's net investment income, which
is derived from the dividends, interest and earned discount on the securities it
holds less expenses (which will vary by Class). The second source is realized
capital gains, which are derived from the proceeds received from the sale of
securities at a price higher than the Fund's tax basis (usually cost) in such
securities; these gains can be either long-term or short-term, depending on how
long the Fund has owned the securities before it sells them. The third source
is net realized gains from foreign currency transactions. The payments made to
shareholders from net investment income, net short-term capital gains and net
realized gains from certain foreign currency transactions are called dividends.
Payments, if any, from long-term capital gains are called distributions.
The Fund pays distributions only if it has net realized capital gains (the
excess of net long-term capital gains over net short-term capital losses). It
may or may not have such gains, depending on whether securities are sold and at
what price. If the Fund has net realized capital gains, it will ordinarily pay
distributions once each year, in the latter part of the fourth calendar quarter.
Even if the Fund has net capital gains for a year, the Fund does not pay out the
gains if it has applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions reinvested in shares of the Fund of the same Class as that with
respect to which they were paid or (iii) you want cash for your dividends and
want your distributions reinvested in shares of the Fund of the same Class as
that with respect to which they were paid. You can change your instructions at
any time. If you give no instructions, your dividends and distributions will be
reinvested in shares of the Fund of the same Class as that with respect to which
they were paid. All reinvestments are at net asset value without any sales
charge. The net asset value used for this purpose is that computed as of the
record date for the dividend or distribution, although this could be changed by
the Directors.
Even if you get dividends and distributions on Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc., of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies (or
options, futures contracts or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or in
options with respect to securities) ("Short-Short Limitation"); (3) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
Securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each quarter of
the Fund's taxable year, not more than 25% of the value of its total assets may
be invested in securities (other than U.S. Government Securities or the
securities of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors should also
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Because more than 50% of the value
of the Fund's total assets at the close of its taxable year will ordinarily
consist of securities of foreign corporations, the Fund will be eligible to, and
may, file an election with the Internal Revenue Service that will enable the
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Fund.
Pursuant to any such election, the Fund would treat those taxes as dividends
paid to its shareholders and each shareholder would be required to (1) include
in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes; (2) treat the shareholder's share of those
taxes and of any dividend paid by the Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources;
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's federal income tax.
The Fund will report to its shareholders shortly after each taxable year the
share of its income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and entering into forward currency contracts, involves complex rules
that will determine for income tax purposes the character and timing of
recognition of the gains and losses the Fund realizes in connection therewith.
Income from foreign currencies (except certain gains therefrom that may be
excluded by future regulations), and income from transactions in options and
forward currency contracts derived by the Fund with respect to its business of
investing in securities, will qualify as permissible income under the Income
Requirement. However, income from the disposition of options will be subject to
the Short-Short Limitation if they are held for less than three months. Income
from the disposition of foreign currencies, and forward currency contracts
thereon, that are not directly related to the Fund's principal business of
investing in securities (or options with respect to securities) also will be
subject to the Short-Short Limitation if they are held for less than three
months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of options and certain Forward Contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund enters into a closing purchase transaction, it will
have a short-term capital gain or loss based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many options
that it could fail to continue to qualify as a RIC.
Code section 1092 (dealing with straddles) also may affect the taxation of
options in which the Fund may invest. Section 1092 defines a "straddle" as
offsetting positions with respect to personal property; for these purposes,
options are personal property. Section 1092 generally provides that any loss
from the disposition of a position in a straddle may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the Fund makes certain elections, the amount, character and
timing of the recognition of gains and losses from the affected straddle
positions will be determined under rules that vary according to the elections
made. Because only a few of the regulations implementing the straddle rules
have been promulgated, the tax consequences of straddle transactions to the Fund
are not entirely clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of the Fund.
Transactions in securities other than those for which an exchange is the primary
market are generally done with dealers acting as principals or market makers.
Brokerage commissions are paid primarily for effecting transactions in
securities traded on an exchange and otherwise only if it appears likely that a
better price or execution can be obtained. The individual who manages the Fund
may manage other advisory accounts with similar investment objectives. It can
be anticipated that the manager will frequently place concurrent orders for all
or most accounts for which the manager has responsibility. Transactions
effected pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each fund or
advisory account.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations, WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other funds managed by WRIMCO
and its affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, WRIMCO may consider sales
of shares of the Fund and other funds managed by WRIMCO and its affiliates as a
factor in the selection of brokers to execute portfolio transactions. WRIMCO
intends to allocate brokerage on the basis of this factor only if the sale is $2
million or more and there is no sales charge. This results in the consideration
only of sales which by their nature would not ordinarily be made by Waddell &
Reed, Inc.'s direct sales force and is done in order to prevent the direct sales
force from being disadvantaged by the fact that it cannot participate in Fund
brokerage.
During the Fund's fiscal years ended June 30, 1994, 1993 and 1992, it paid
brokerage commissions of $2,475,162, $1,864,173 and $1,830,572, respectively.
These figures do not include principal transactions or spreads or concessions on
principal transactions, i.e., those in which the Fund sells securities to a
broker-dealer firm or buys from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended June 30, 1994, the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $468,304,319 on which $1,457,424 in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investing activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts over which Waddell &
Reed Asset Management Company exercises investment discretion frequently buy or
sell the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two Classes of its shares: Class A and Class Y. Prior to
July 4, 1995, the Fund offered only one Class of shares to the public. Shares
outstanding on that date were designated as Class A shares. Each Class
represents an interest in the same assets of the Fund and differ as follows:
each Class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that Class; Class A shares are subject to an
initial sales charge and to an ongoing service fee; each Class may bear
differing amounts of certain Class-specific expenses; and each Class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different Classes of
shares of the Fund by virtue of those Classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two Classes, dividends and liquidation proceeds of Class A
shares are expected to be lower than for Class Y shares of the Fund. Each
fractional share of a Class has the same rights, in proportion, as a full share
of that Class.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS
Argentina - 1.09%
Ciadea, S.A. ........................... 194,022 $ 1,697,693
Colorin S.A., Series B* ................ 1,002,652 751,989
Compania Naviera Perez Compana S.A.,
Class B ............................... 120,000 494,400
Corcemar S.A., Series B1* .............. 407,982 2,692,681
Molinos Rio de la Plata S.A.* .......... 241,501 1,341,538
Total ................................. 6,978,301
Australia - 2.25%
Advance Bank Australia Ltd. ............ 526,036 3,588,955
Futuris Corporation LTD ................ 2,579,300 2,219,702
News Corporation Limited ............... 563,180 2,205,000
Westpac Banking Corp. .................. 1,887,894 6,352,391
Total ................................. 14,366,048
Brazil - 0.63%
Santista Alimentos S.A. ................ 815,000 1,674,262
Telecomunicacoes Brasileiras S/A -
Telebras, ADR ......................... 52,107 2,330,985
Total ................................. 4,005,247
Canada - 0.30%
Suzy Shier Limited* .................... 360,100 1,926,492
Chile - 0.28%
Laboratorio Chile S.A., ADR ............ 60,000 1,312,500
Telex-Chile, S.A., ADR ................. 45,000 478,125
Total ................................. 1,790,625
China - 0.45%
Shandong Hauneng Power Development
Ltd., Series N* ....................... 300,000 2,887,500
Denmark - 1.55%
Danske Traelast* ....................... 80,000 6,361,081
Thorkild Kristensen .................... 58,450 3,506,328
Total ................................. 9,867,409
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Finland - 13.91%
Enso-Gutzeit Oy ........................ 1,120,000 $ 9,621,749
Kymmene Oy ............................. 250,000 6,807,244
Metsa-Serla Oy, Series B ............... 276,000 12,117,528
Nokia Corporation ...................... 326,000 48,167,849
Pohjola Insurance Company Ltd. ......... 76,700 835,385
Raision Tehtaat Oy AB .................. 10,500 177,305
Tampella Oy* ........................... 3,776,667 11,160,363
Total ................................. 88,887,423
France - 7.50%
Cerus .................................. 283,333 4,751,415
Credit Lyonnais SA* .................... 84,375 6,987,774
Europe 1 Communication ................. 6,000 1,643,620
Guyenne et Gascogne .................... 19,500 4,932,547
Lapeyre S.A. ........................... 202,985 10,231,022
Pinault-Printemps SA ................... 21,000 3,730,186
Societe Industrielle de Transports
Automobiles S.A. ...................... 42,100 5,474,499
Television-Francais 1-TF1 S.A. ......... 50,000 4,536,256
UNION DES ASSURANCES DE PARIS ......... 150,000 3,872,962
UNION DES ASSURANCES FEDERALES ........ 18,000 1,790,894
Total ................................. 47,951,175
Germany - 6.61%
Buderus Aktiengesellschaft ............. 6,000 2,567,280
FAG Kugelfischer AG* ................... 35,000 5,195,224
GILDEMEISTER Aktiengesellschaft* ....... 47,800 4,596,450
Mannesman AG ........................... 36,000 9,804,453
plettac AG ............................. 1,150 545,499
TRAUB AG (A)* .......................... 49,800 6,877,832
VEBA AG ................................ 22,500 7,841,239
Vereinigter Baubeschlag-Handel
Aktiengesellschaft..................... 16,900 4,798,967
Total ................................. 42,226,944
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Hong Kong - 3.54%
Dongfang Electrical Machinery
Co., Ltd.* ............................ 3,000,000 $ 1,366,632
First Pacific Company Limited* ......... 7,614,000 5,559,460
Great Eagle Holdings Limited ........... 2,000,000 801,241
Guangdong Corporation Limited ..........11,000,000 5,437,452
Guangzhou Investment Company Ltd. ......16,000,000 3,246,317
Harbin Power Equipment Co. Ltd.* ....... 2,000,000 672,008
Hutchison Whampoa Limited .............. 780,000 3,155,079
Luks Industrial Company Limited ........11,500,000 1,634,789
M. C. Packaging (Hong Kong) LTD ........ 2,000,000 775,394
Total ................................. 22,648,372
Italy - 0.49%
Arnoldo Mondadori Editore S.p.A. ....... 320,000 2,458,880
Banco di Sardegna Non-Convertible,
RISP .................................. 92,200 677,167
Total ................................. 3,136,047
Japan - 9.80%
Amway Japan ............................ 75,000 2,578,947
Hitachi ................................ 1,000,000 9,914,787
Japan Airport Terminal Co.* ............ 100,000 1,333,333
Kawasaki Steel Corporation* ............ 750,000 3,135,338
Kobe Steel, Ltd.* ...................... 500,000 1,558,897
Matsushita Electric Industrial ......... 200,000 3,288,221
Mitsubishi Chemical .................... 450,000 2,472,180
Mitsubishi Motors ...................... 400,000 3,917,794
NEC .................................... 600,000 6,857,143
NKK* ................................... 2,000,000 5,533,835
Nakakita Seisakusho Company, Ltd. ...... 169,000 747,158
Navix Line* ............................ 950,000 3,371,429
NIPPON STEEL CORPORATION ............... 500,000 1,879,699
Nippon Telegraph & Telephone
Corporation ........................... 400 3,532,832
Sharp .................................. 200,000 3,609,023
Sumitomo Chemical ...................... 850,000 4,857,143
Sumitomo Metal Industries, Ltd.* ....... 1,250,000 4,047,619
Total ................................. 62,635,378
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Mexico - 7.84%
Cemex, S.A., CPO Shares, Series A ...... 1,308,750 $ 6,439,050
Corporacion GEO, S.A. de C.V., Class B* 210,000 1,092,000
Corporacion GEO, S.A. de C.V., ADR,
Class B* .............................. 25,000 493,750
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B ................. 847,000 4,235,000
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class C ................. 228,918 1,277,363
Farmacies Benavides, S.A. de C.V.,
Class B ............................... 350,000 719,600
Grupo Carso, S.A. de C.V., Series 1A* .. 636,500 4,678,275
Grupo Financiero Banamex Accival,
S.A. de C.V., C ....................... 659,000 1,897,920
Grupo Financiero Bancomer, S.A. de
C.V., CPO Shares, Series B ............ 5,279,600 2,502,530
Grupo Financiero Bancomer, S.A. de
C.V., Series C ........................ 500,000 275,000
Grupo Financiero InverMexico,
S.A. de C.V., B ...................... 1,000,000 880,000
Grupo Financiero InverMexico,
S.A. de C.V., L ....................... 100,000 88,000
Grupo Mexicano de Desarrollo, S.A.,
B, ADR*................................ 235,800 1,797,975
Grupo Mexicano de Desarrollo, S.A.,
L, ADR* ............................... 198,119 1,758,306
Grupo Tribasa, S.A.de C.V., ADR* ....... 209,000 3,474,625
Hylsamex, S.A. de C.V., ADR (B)* ....... 125,000 2,109,375
Telefonos de Mexico, S.A. de C.V.,
ADR ................................... 400,000 16,400,000
Total ................................. 50,118,769
Norway - 3.84%
Den Norske Bank* ....................... 100,000 267,514
Den Norske Luftfartselskap A/S,
Series B* ............................. 350,000 11,018,327
Elkem Metals, Class A* ................ 500,500 6,472,620
Gresvig A/S* ........................... 75,000 886,787
Kverneland A/S ......................... 200,000 2,660,361
Schibsted A/S .......................... 145,000 1,671,593
Sparebkn Nor Grundfondsbevis ........... 80,000 1,560,745
Total ................................. 24,537,947
Singapore - 0.16%
L&M Group Investments Ltd. ............. 1,541,000 1,088,635
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Spain - 4.27%
Asland, S.A. .......................... 25,893 $ 345,043
Centros Commerciales Pryca, S.A. ....... 230,100 3,468,098
Conserva Campofrio, S.A. ............... 16,979 902,453
Corporation Financiero Alba, S.A. ...... 77,250 3,273,007
Cortefiel S.A. ......................... 26,360 790,600
Cristaleria Espanola, S.A.* ............ 65,283 3,474,820
Cubiertas y Mzov S.A. .................. 114,525 8,078,491
Grupo Uralita S.A.* .................... 480,000 4,683,371
Inmobiliaria Metropolitana Vasco
Central, S.A. ......................... 70,000 2,250,949
Total ................................. 27,266,832
Sweden - 15.01%
ASTRA AB, Class A ...................... 276,665 7,145,793
Avesta Sheffield AB* ................... 231,437 2,288,311
Bilspedition AB* ....................... 1,175,000 4,046,437
Bylock & Nordsjofrakt AB, Class B ...... 137,600 1,082,852
Catena, Series A* ...................... 550,000 4,698,199
Forsheda AB, Class B ................... 125,000 2,732,488
Hoganas AB* ............................ 300,000 4,641,027
Kinnevik AB, Series B .................. 375,000 12,409,702
Marieberg Tidnings AB, Series A ........ 15,200 343,517
NCC AB, Series B* ...................... 500,000 4,405,612
Rottneros AB* .......................... 3,000,000 3,773,356
Rottneros AB, Rights* .................. 3,000,000 585,173
Skandia Enskilda Banken, Class A* ...... 1,520,000 8,690,154
Skane-Gripen AB, Class B ............... 270,000 1,852,375
Stena Line AB, Class B ................. 474,500 2,585,153
Svenska Handelsbanken, Class A ......... 250,000 3,295,802
Trelleborg AB, Series B* ............... 450,000 6,568,062
Trygg-Hansa S Holding AB ............... 550,000 5,918,990
AB Volvo .............................. 1,000,000 18,833,152
Total ................................. 95,896,155
Switzerland - 1.84%
BIL GT Group ........................... 5,000 2,417,876
Forbo Holding SA ....................... 4,900 4,117,647
Prodega AG ............................ 5,200 1,330,787
Societe Internationale Pirelli* ........ 40,000 3,911,383
Total ................................. 11,777,693
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Shares Value
COMMON STOCKS AND RIGHTS (Continued)
Thailand - 2.19%
Charoen Pokphand Feedmill* ............. 850,000 $ 5,795,841
Matichon Company Ltd.* ................. 696,866 4,514,789
Sahaviriya Steel Industry .............. 300,000 1,319,736
Thai Stanley Electric Co. Ltd. ......... 206,800 744,331
Univest Land Public Co. Ltd.* .......... 500,000 1,599,680
Total ................................. 13,974,377
Turkey - 0.15%
Tofas, Turk Otomobil Fabrikasi
Anonim Sirketi, ADS (B) ............... 230,000 948,750
United Kingdom - 9.16%
AMEC ................................... 3,700,000 3,999,273
BET Plc ................................ 1,200,000 1,907,996
BTR PLC ................................ 1,200,000 5,517,211
British Sky Broadcasting
Group plc, ADR* ....................... 67,000 1,608,000
Comcast UK Cable Partners* ............. 75,000 1,195,275
House of Fraser PLC .................... 2,175,000 5,945,453
MFI Furniture Group PLC ................ 750,000 1,527,337
Next plc ............................... 4,450,000 17,915,271
Pilkington PLC ......................... 3,080,645 8,010,876
Shandwick PLC .......................... 2,900,000 1,839,854
Takare PLC ............................. 465,000 1,602,529
Taylor Woodrow ......................... 1,500,000 2,995,930
United Biscuits (Holdings) Public
Limited Co. ........................... 867,822 4,445,378
Total ................................. 58,510,383
TOTAL COMMON STOCKS AND RIGHTS - 92.86% $593,426,502
(Cost: $534,315,444)
PREFERRED STOCKS
Brazil - 0.78%
Iochpe-Maxion S.A. ..................... 7,201,000 5,016,045
Germany - 1.49%
Hornbach-Baumarkt AG ................... 9,500 9,503,065
TOTAL PREFERRED STOCKS - 2.27% $ 14,519,110
(Cost: $7,012,752)
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1994
Value
TOTAL SHORT-TERM SECURITIES - 5.44% $ 34,735,615
(Cost: $34,735,615)
TOTAL INVESTMENT SECURITIES - 100.57% $642,681,227
(Cost: $576,063,811)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.57%) (3,627,435)
NET ASSETS - 100.00% $639,053,792
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS
Argentina - 1.97%
Astra Cia Argentina De Petro ........... 455,083 $ 902,885
Banco Frances del Rio de la
Plata, SA, ADR ........................ 45,500 1,018,063
Ciadea, S.A.* .......................... 194,022 2,139,287
Colorin S.A.* .......................... 696,330 893,391
Compania Naviera Perez Companc S.A.,
Class B ............................... 320,000 1,520,320
Corcemar S.A. .......................... 64,371 519,410
IRSA Inversiones Y Representaciones S.A.* 131,165 453,569
Molinos Rio de la Plata S.A.* .......... 292,316 3,838,401
Total ................................. 11,285,326
Australia - 3.43%
Advance Bank Australia Ltd. ............ 695,136 4,585,812
Australian Consolidated Press Group
Limited ............................... 250,000 759,750
Bank of Melbourne Ltd. ................. 23,103 82,524
Futuris Corporation LTD ................ 2,400,000 2,239,200
News Corporation Limited ............... 603,180 3,675,779
Pacific Magazines & Printing, Limited .. 300,000 629,700
West Australian Newspapers Holdings,
Limited ............................... 594,000 1,853,280
Westpac Banking Corp. .................. 1,787,894 5,810,656
Total ................................. 19,636,701
Austria - 1.23%
Universale-Bau, Aktiengesellschaft ..... 50,000 3,739,100
VA Technologie Aktiengesellschaft* ..... 40,000 3,295,760
Total ................................. 7,034,860
Brazil - 0.59%
Telecomunicacoes Brasileiras S/A -
Telebras, ADR ......................... 87,500 3,390,625
Canada - 0.40%
Suzy Shier Limited* .................... 379,900 2,299,915
Chile - 0.20%
Laboratorio Chile S.A., ADS* ........... 80,000 1,120,000
China - 0.34%
Maanshan Iron & Steel Company Limited,
ADS (C)* .............................. 70,380 1,929,116
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Denmark - 1.61%
Danske Traelast* ....................... 80,000 $ 4,401,440
Girobank ............................... 40,000 1,559,080
Thorkild Kristensen* .................. 58,450 3,234,565
Total ................................. 9,195,085
Finland - 10.06%
Enso-Gutzeit Oy ........................ 1,120,000 8,464,960
Metsa Serla Oy, Class B ................ 251,000 9,676,050
Nokia Corporation ...................... 326,000 26,551,396
Pohjola Insurance Company Ltd. ......... 91,700 1,034,468
Raision Tehtaat Oy AB .................. 8,200 757,737
Sampo Ins Co Ltd., A Shares ............ 6,000 260,778
Tampella Oy* ........................... 3,526,667 10,862,134
Total ................................. 57,607,523
France - 7.36%
Compagnies Europeennes Reunies S.A. .... 333,333 6,366,994
Credit Lyonnais SA ..................... 66,675 5,797,791
Epeda Bertrand Faure ................... 10,000 1,525,870
Europe 1 Communication ................. 6,000 1,875,168
Guyenne et Gascogne .................... 19,500 5,126,375
Lapeyre ................................ 202,985 11,310,730
Poliet Ex Lambert Freres ............... 14,900 1,166,908
Societe Industrielle de Transports
Automobiles S.A. ...................... 42,100 5,262,963
Union Des Assurances Federales ........ 35,000 3,680,460
Total ................................. 42,113,259
Germany - 4.75%
AVA Allgemeine Handelsgesellschaft der
Verbraucher AG ........................ 4,258 1,556,363
Buderus Aktiengesellschaft ............. 2,000 757,498
FAG Kugelfischer AG* ................... 8,000 1,179,728
GILDEMEISTER Aktiengesellschaft* ....... 5,690 724,337
Kolbenschmidt AG* ...................... 4,000 541,968
Mannesman AG ........................... 31,000 7,892,600
TRAUB AG* .............................. 30,000 4,253,820
Veba AG ................................ 12,500 3,926,925
Vereinigter Baubeschlag-Handel
Aktiengesellschaft..................... 8,100 4,716,662
WERU AG ............................... 1,900 1,622,446
Total ................................. 27,172,347
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Hong Kong - 3.17%
China Overseas Land & Investment, Ltd. . 5,000,000 $ 1,130,000
Dongfang Electrical Machinery
Co., Ltd.* ............................ 3,000,000 1,143,000
Guangdong Corporation Limited ......... 7,000,000 4,025,000
Guangzhou Investment .................. 9,000,000 2,529,000
International Tak Cheung (Holdings) LTD . 2,230,000 807,260
M. C. Packaging (Hong Kong) LTD ........ 2,500,000 897,500
New World Development Company Ltd. .... 750,000 2,085,750
Oriental Press Group Limited ........... 2,000,000 1,500,000
Peregrine Investments Holdings,
Ltd. .................................. 1,500,000 2,464,500
Prod-Art Technology Holdings Limited ... 4,682,000 379,242
Wo Kee Hong (Holdings) Limited ......... 2,850,000 1,214,100
Total ................................. 18,175,352
Italy - 1.52%
Arnoldo Mondadori Editore S.p.A. ....... 320,000 3,406,720
Banco di Sardegna Non-Convertible,
RISP .................................. 142,200 1,450,724
Fiat Impresit Sistemi
Ambientali S.p.A. ..................... 600,000 1,437,000
Instituto Mobiliare Italiano SpA ....... 300,000 2,030,400
Merloni Elettrodomestici .............. 247,500 376,200
Total ............................... 8,701,044
Japan - 13.51%
Aichi Steel Works Ltd.* ................ 209,000 1,461,119
Alps Electric .......................... 100,000 1,440,800
Amway Japan ............................ 75,000 2,907,150
Asahi Glass ............................ 300,000 3,713,700
Hitachi ................................ 1,100,000 11,496,100
Kawasaki Steel Corporation ............. 750,000 3,180,750
Kobe Steel, Ltd. ....................... 500,000 1,603,000
Matsushita Electric Industrial ......... 200,000 3,673,200
Mitsubishi Heavy Industries, Ltd. ...... 250,000 2,001,500
Mitsubishi Kasei Corporation ........... 500,000 2,663,500
Mitsubishi Motors ...................... 400,000 3,977,600
NEC .................................... 600,000 7,427,400
NKK .................................... 1,200,000 3,225,600
Nakakita Seisakusho Company, Ltd.* ..... 200,000 1,156,600
Navix Line ............................. 1,100,000 4,240,500
Nippon Steel Corporation ............... 500,000 1,745,000
Nissan Diesel Motor* ................... 500,000 2,932,500
OKi Electric Industry* ................. 300,000 2,416,800
Omron .................................. 300,000 5,388,000
Sharp .................................. 300,000 5,448,900
Sumitomo Chemical ...................... 550,000 2,979,900
Sumitomo Metal Industries, Ltd.* ....... 750,000 2,259,750
Total ................................. 77,339,369
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Malaysia - 0.10%
Berjaya Sports Toto Bhd ................ 400,000 $ 598,800
Mexico - 6.56%
Cemex, S.A., CPO Shares ................ 808,750 5,160,634
Cifra, S.A. de C.V., C ................. 950,000 2,211,600
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., B ....................... 847,000 5,467,385
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., C ...................... 228,918 1,484,304
Grupo Carso, S.A. de C.V., Class 1* .... 636,500 5,759,689
Grupo Financiero Banamex Accival,
S.A. de C.V., C ....................... 659,000 4,166,198
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares ................... 5,279,600 4,434,864
Grupo Financiero Bancomer, S.A. de
C.V., C .............................. 500,000 560,000
Grupo Financiero InverMexico,
S.A. de C.V., B ...................... 1,000,000 1,709,000
Grupo Financiero InverMexico,
S.A. de C.V., L ....................... 100,000 170,900
Grupo Iusacell, S.A. de C.V., D, ADS* .. 3,000 79,125
Grupo Iusacell, S.A. de C.V., L, ADS* .. 7,000 182,000
Grupo Mexicano de Desarrollo, S.A.,
B, ADS*................................ 175,000 2,340,625
Grupo Mexicano de Desarrollo, S.A.,
L, ADS* ............................... 129,000 1,951,125
Grupo Tribasa, S.A.de C.V., ADS* ....... 84,000 1,858,500
Total ................................. 37,535,949
Netherlands - 0.27%
Pirelli Tyre Holding* .................. 175,000 1,561,000
Norway - 2.78%
Den Norske Luftfartselskap A/S,
Class B* .............................. 280,000 7,643,720
Elkem Metals, Class A* ................ 300,500 4,123,161
Kverneland ............................ 85,000 969,850
Schibsted A/S .......................... 145,000 1,727,820
Sparebkn Nor Grundfondsbevis ........... 80,000 1,467,520
Total ................................. 15,932,071
Portugal - 0.13%
Espirito Santo Financial Holding
SA, ADS ............................... 27,400 739,800
Singapore - 0.21%
L&M Group Investments Ltd. ............. 1,630,000 1,227,390
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Spain - 5.12%
Centros Commerciales Pryca, S.A. ....... 280,100 $ 3,750,259
Conserva Campofrio, S.A. ............... 23,850 1,401,044
Corporation Financiero Alba, S.A. ...... 67,250 2,821,810
Cristaleria Espanola, S.A. ............. 70,450 3,789,224
Cubiertas y Mzov ....................... 124,525 9,547,705
Grupo Uralita* ......................... 415,000 4,812,340
Inmobiliaria Metropolitana Vasco
Central, S.A. ......................... 70,000 2,477,930
Sotogrande S.A.* ....................... 234,000 722,826
Total ................................. 29,323,138
Sweden - 14.78%
ASTRA AB, Class A ...................... 226,665 4,586,340
Avesta Sheffield AB* ................... 1,130,000 7,670,440
Bilspedition AB* ....................... 1,475,000 5,255,425
Bylock & Nordsjofrakt AB, Class B ...... 100,000 861,500
Catena, Class A ........................ 450,000 4,112,100
Enator AB, Class B ..................... 510,000 2,263,380
Forsheda AB, Class B ................... 125,000 1,794,875
Garphyttan Industrier AB ............... 13,700 346,953
Hoganas AB* ............................ 300,000 3,739,800
Kinnevik ............................... 250,000 4,928,000
Marieberg Tidnings AB, Series A ........ 20,000 396,840
Rottneros AB* .......................... 3,000,000 2,916,000
Skandia Enskilda Banken, Class A* ...... 1,020,000 6,071,040
Skane-Gripen AB, Class B ............... 245,000 1,822,800
Stena Line AB, Class B ................. 449,500 2,928,043
Svenska Handelsbanken, Class A* ........ 300,000 4,033,500
Telefonaktiebolaget LM Ericcson,
Class B................................ 151,100 7,574,341
Trelleborg AB, Series B* .............. 300,000 4,033,500
Trygg-Hansa S Holding AB ............... 300,000 3,524,400
AB Volvo .............................. 180,000 15,743,340
Total ................................. 84,602,617
Switzerland - 2.59%
ASG Arbonia-Foster-Holding AG* ......... 255 1,424,634
BIL GT Group ........................... 5,000 2,354,705
Forbo Holding SA ....................... 4,900 4,519,682
Prodega AG ............................ 5,200 1,501,308
Societe Internationale Pirelli SA* ..... 40,000 5,009,360
Total ................................. 14,809,689
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Turkey - 0.15%
Tofas, Turk Otomobil Fabrikasi
Anonim Sirketi, ADS (C) ............... 115,000 $ 848,125
United Kingdom - 8.78%
AMEC ................................... 2,250,000 3,681,000
BET Plc ................................ 1,200,000 2,110,800
BTR PLC ............................... 1,000,000 5,463,000
Barclays Bank PLC ...................... 506,666 4,058,395
Body Shop (The) ........................ 310,000 1,152,890
HSBC Holdings plc ...................... 379,317 4,027,967
House of Fraser PLC* ................... 1,000,000 2,855,000
Next plc ............................... 3,000,000 10,833,000
Pentos Plc ............................. 1,225,000 481,425
Pilkington PLC ......................... 3,080,645 7,938,822
Takare PLC ............................. 490,000 1,610,630
Taylor Woodrow ......................... 1,250,000 2,546,250
United Biscuits (Holdings) Public
Limited Co. ........................... 667,822 3,236,265
WEW Group PLC .......................... 485,000 269,175
Total ................................. 50,264,619
TOTAL COMMON STOCKS - 91.61% $524,443,720
(Cost: $458,975,649)
PREFERRED STOCKS
Austria - 0.34%
Creditanstalt Bank Verein .............. 30,000 1,921,050
Brazil - 0.76%
Iochpe-Maxion S.A. ..................... 8,341,000 4,328,979
Germany - 1.81%
Hornbach-Baumarkt AG ................... 10,000 10,398,280
TOTAL PREFERRED STOCKS - 2.91% $ 16,648,309
(Cost: $9,000,477)
See Notes to Schedule of Investments on page 65.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Face
Amount in
Thousands Value
UNREALIZED GAIN ON OPEN FORWARD CURRENCY
CONTRACT - 0.03%
British Pounds, 12-29-94 (D) ............ P19,500$ 179,400
TOTAL SHORT-TERM SECURITIES - 3.70% $ 21,151,365
(Cost: $21,151,365)
TOTAL INVESTMENT SECURITIES - 98.25% $562,422,794
(Cost: $489,127,491)
CASH AND OTHER ASSETS, NET
OF LIABILITIES - 1.75% 10,033,269
NET ASSETS - 100.00% $572,456,063
See Notes to Schedule of Investments on page 65.
<PAGE>
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Affiliate as defined by the Investment Company Act of 1940 by reason of
ownership by the Fund of 5% or more of its outstanding voting securities.
(B) As of December 31, 1994, the following restricted securities were owned in
the International Growth Fund:
Acquisition Acquisition Market
Security Date Shares Cost Value
---------------- -----------------------------------------------
Hylsamex, S.A. de
C.V., ADS 10/27/94 125,000 $2,687,500 $2,109,375
Tofas, Turk
Otomobil
Fabrikasi Anonim
Sirketi, ADS 3/3/94 150,000 1,237,500 618,750
3/8/94 40,000 327,500 165,000
3/9/94 40,000 265,000 165,000
---------- ----------
$4,517,500 $3,058,125
========== ==========
The total market value of restricted securities represents approximately
0.48% of the total net assets in the International Growth Fund at December
31, 1994.
(C) As of June 30, 1994, the following restricted securities were owned in the
International Growth Fund:
Acquisition Acquisition Market
Security Date Shares Cost Value
---------------- --------------------------------------------
Tofas, Turk
Otomobil
Fabrikasi Anonim
Sirketi, ADS 3/3/94 75,000$1,237,500$ 553,125
3/8/94 20,000 327,500 147,500
3/9/94 20,000 265,000 147,500
Maanshan Iron &
Steel Company
Limited, ADS 10/14/93 70,380 2,078,517 1,929,116
--------------------
$3,908,517$2,777,241
====================
The total market value of restricted securities represents approximately
0.49% of the total net assets in the International Growth Fund at June 30,
1994.
(D) Principal amounts are denominated in the indicated foreign currency where
applicable (P - British Pound).
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>
Table I: Portfolio Diversification by Nation and Industry
December 31, 1994 market value as percent of total net assets
- ---------------------------------------------------------------------------
United
Sweden Finland Japan Kingdom GermanyMexicoFrance
- ---------------------------------------------------------------------------
Building 1.37% 2.96% .47% .75% 1.80% 1.60%
- ---------------------------------------------------------------------------
Telecommunications 7.54 .55% 2.57
- ---------------------------------------------------------------------------
Multi-Industry 3.71 .03 .12 1.16 1.60
- ---------------------------------------------------------------------------
Retailing 3.97 1.49 .11 1.36
- ---------------------------------------------------------------------------
Machinery 1.75 3.33
- ---------------------------------------------------------------------------
Banks and
Savings and Loans 1.88 .59 1.09
- ---------------------------------------------------------------------------
Automotive 3.38 .61 .74
- ---------------------------------------------------------------------------
Engineering and
Construction .73 .63 1.30 .54
- ---------------------------------------------------------------------------
Electrical Equipment 3.70
- ---------------------------------------------------------------------------
Steel .34 2.53 .33
- ---------------------------------------------------------------------------
Food and Related .70
- ---------------------------------------------------------------------------
Insurance .93 .13 .88
- ---------------------------------------------------------------------------
Packaging and
Containers 1.25
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Public Utilities -
Electric 1.23
- ---------------------------------------------------------------------------
Leisure Time .44 .97
- ---------------------------------------------------------------------------
Paper 1.50
- ---------------------------------------------------------------------------
Publishing and
Advertising .05
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply 1.12
- ---------------------------------------------------------------------------
Chemicals Major 1.15
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .86
- ---------------------------------------------------------------------------
Trucking .80
- ---------------------------------------------------------------------------
Household Products .29 .40
- ---------------------------------------------------------------------------
Tire and Rubber
- ---------------------------------------------------------------------------
Shipping .53
- ---------------------------------------------------------------------------
Services, Consumer
and Business .21 .29
- ---------------------------------------------------------------------------
Electronics .41
- ---------------------------------------------------------------------------
Financial .30
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management .25
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Total 15.01% 13.91% 9.80% 9.16% 8.10% 7.84% 7.50%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
December 31, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Hong Aus- Thai- Switz-
Spain Norway Kong tralia landerland
- ---------------------------------------------------------------------------
Building 1.14% .89% .25% .64%
- ---------------------------------------------------------------------------
Telecommunications
- ---------------------------------------------------------------------------
Multi-Industry .51 2.21 .35%
- ---------------------------------------------------------------------------
Retailing .67 .14%
- ---------------------------------------------------------------------------
Machinery .42
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .29 1.56 .38
- ---------------------------------------------------------------------------
Automotive .11
- ---------------------------------------------------------------------------
Engineering and
Construction 1.26
- ---------------------------------------------------------------------------
Electrical Equipment .32
- ---------------------------------------------------------------------------
Steel
- ---------------------------------------------------------------------------
Food and Related .14 .91 .21
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Packaging and
Containers .55 .12
- ---------------------------------------------------------------------------
Airlines 1.72
- ---------------------------------------------------------------------------
Public Utilities -
Electric
- ---------------------------------------------------------------------------
Leisure Time .26
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Publishing and
Advertising .34 .71
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals Major
- ---------------------------------------------------------------------------
Metals and Mining 1.01
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Tire and Rubber .61
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
Services, Consumer
and Business
- ---------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Financial
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
Computers and
Office Equipment .21
- ---------------------------------------------------------------------------
Total 4.27% 3.84% 3.54% 2.25% 2.19% 1.84%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
December 31, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Argen-
Denmark Brazil tina Italy China Canada
- ---------------------------------------------------------------------------
Building 1.55% .54%
- ---------------------------------------------------------------------------
Telecommunications .36%
- ---------------------------------------------------------------------------
Multi-Industry .08
- --------------------------------------------------------------------------
Retailing
- ---------------------------------------------------------------------------
Machinery .79
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .11%
- ---------------------------------------------------------------------------
Automotive .26
- ---------------------------------------------------------------------------
Engineering and
Construction
- ---------------------------------------------------------------------------
Electrical Equipment
- ---------------------------------------------------------------------------
Steel
- ---------------------------------------------------------------------------
Food and Related .26 .21
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Packaging and
Containers
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Public Utilities -
Electric .45%
- ---------------------------------------------------------------------------
Leisure Time
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Publishing and
Advertising .38
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals Major
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Tire and Rubber
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
Services, Consumer
and Business
- ---------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Financial
- ---------------------------------------------------------------------------
Textiles and Apparel .30%
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Total 1.55% 1.41% 1.09% .49% .45% .30%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
December 31, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Singa-
Chile pore Turkey Total
- ------------------------------------------------------------
Building 13.96%
- ------------------------------------------------------------
Telecommunications.08% 11.10
- ------------------------------------------------------------
Multi-Industry 9.77
- ------------------------------------------------------------
Retailing 7.74
- ------------------------------------------------------------
Machinery 6.29
- ------------------------------------------------------------
Banks and
Savings and Loans 5.90
- ------------------------------------------------------------
Automotive .15% 5.25
- ------------------------------------------------------------
Engineering and
Construction .16% 4.62
- ------------------------------------------------------------
Electrical Equipment 4.02
- ------------------------------------------------------------
Steel 3.20
- ------------------------------------------------------------
Food and Related 2.43
- ------------------------------------------------------------
Insurance 1.94
- ------------------------------------------------------------
Packaging and
Containers 1.92
- ------------------------------------------------------------
Airlines 1.72
- ------------------------------------------------------------
Public Utilities -
Electric 1.68
- ------------------------------------------------------------
Leisure Time 1.67
- ------------------------------------------------------------
Paper 1.50
- ------------------------------------------------------------
Publishing and
Advertising 1.48
- ------------------------------------------------------------
Drugs and
Hospital Supply .20 1.32
- ------------------------------------------------------------
Chemicals Major 1.15
- ------------------------------------------------------------
Metals and Mining 1.01
- ------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .86
- ------------------------------------------------------------
Trucking .80
- ------------------------------------------------------------
Household Products .69
- ------------------------------------------------------------
Tire and Rubber .61
- ------------------------------------------------------------
Shipping .53
- ------------------------------------------------------------
Services, Consumer
and Business .50
- ------------------------------------------------------------
Electronics .41
- ------------------------------------------------------------
Financial .30
- ------------------------------------------------------------
Textiles and Apparel .30
- ------------------------------------------------------------
Hospital Management .25
- ------------------------------------------------------------
Computers and
Office Equipment .21
- ------------------------------------------------------------
Total .28% .16% .15% 95.13%
- ------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994 market value as percent of total net assets
- ---------------------------------------------------------------------------
United
SwedenJapan Finland KingdomFranceGermany Mexico
- ---------------------------------------------------------------------------
Building .51% 0.65% 1.69% .45% 2.18% 1.10% 1.65%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans 1.77 1.41 1.01 1.20
- ---------------------------------------------------------------------------
Multi-Industry 2.28 .20 .12 1.32 2.23
- ---------------------------------------------------------------------------
Retailing 2.72 .90 2.09 .39
- ---------------------------------------------------------------------------
Telecommunications1.32 4.64 .04
- ---------------------------------------------------------------------------
Automotive 3.12 1.20 1.38 .09
- ---------------------------------------------------------------------------
Engineering and
Construction .65 .64 .34 .32
- ---------------------------------------------------------------------------
Machinery .36 1.90 2.25
- ---------------------------------------------------------------------------
Steel 1.34 2.35
- ---------------------------------------------------------------------------
Electrical Equipment 3.62
- ---------------------------------------------------------------------------
Packaging and
Containers 1.39
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .32 1.59
- ---------------------------------------------------------------------------
Publishing and
Advertising .07
- ---------------------------------------------------------------------------
Food and Related .57
- ---------------------------------------------------------------------------
Insurance .62 .23 .64
- ---------------------------------------------------------------------------
Paper 1.48
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Electronics 1.30
- ---------------------------------------------------------------------------
Shipping .51 .74
- ---------------------------------------------------------------------------
Financial .73
- ---------------------------------------------------------------------------
Tire and Rubber
- ---------------------------------------------------------------------------
Trucking 1.07
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply .80
- ---------------------------------------------------------------------------
Chemicals - Major .99
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .92
- ---------------------------------------------------------------------------
Leisure Time .33
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Public Utilities - .69
Electric
- ---------------------------------------------------------------------------
Household Products .51
- ---------------------------------------------------------------------------
Computers and
Office Equipment .40
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management .28
- ---------------------------------------------------------------------------
International Oil
- ---------------------------------------------------------------------------
Total 14.78% 13.51% 10.06% 8.78% 7.36% 6.56% 6.56%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Aus- Hong Switz- Argen-
Spain tralia Kong Norway erland tinaDenmark
- ---------------------------------------------------------------------------
Building 1.40% 1.00% .79% .33% 1.34%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans 1.83% .26% .41 .17 .27
- ---------------------------------------------------------------------------
Multi-Industry .49 .40 .70 .27
- ---------------------------------------------------------------------------
Retailing .66
- ---------------------------------------------------------------------------
Telecommunications .07
- ---------------------------------------------------------------------------
Automotive .37
- ---------------------------------------------------------------------------
Engineering and
Construction 1.67 .14 .25
- ---------------------------------------------------------------------------
Machinery .16
- ---------------------------------------------------------------------------
Steel
- ---------------------------------------------------------------------------
Electrical Equipment .20
- ---------------------------------------------------------------------------
Packaging and
Containers .66 .16
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .21
- ---------------------------------------------------------------------------
Publishing and
Advertising 1.20 .26
- ---------------------------------------------------------------------------
Food and Related .24 .26 .67
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Airlines 1.34
- --------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
Financial .43
- ---------------------------------------------------------------------------
Tire and Rubber .88
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals - Major
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Leisure Time .30
- ---------------------------------------------------------------------------
Metals and Mining .72
- ---------------------------------------------------------------------------
Public Utilities -
Electric
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
International Oil .16
- ---------------------------------------------------------------------------
Total 5.12% 3.43% 3.17% 2.78% 2.59% 1.97% 1.61%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Nether-
Austria ItalyBrazil Canada China lands
- ---------------------------------------------------------------------------
Building
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .34% .60%
- ---------------------------------------------------------------------------
Multi-Industry
- ---------------------------------------------------------------------------
Retailing
- ---------------------------------------------------------------------------
Telecommunications .59%
- ---------------------------------------------------------------------------
Automotive .25
- ---------------------------------------------------------------------------
Engineering and
Construction 1.23
- ---------------------------------------------------------------------------
Machinery .76
- ---------------------------------------------------------------------------
Steel .34%
- ---------------------------------------------------------------------------
Electrical Equipment
- ---------------------------------------------------------------------------
Packaging and
Containers
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .07
- ---------------------------------------------------------------------------
Publishing and
Advertising .60
- ---------------------------------------------------------------------------
Food and Related
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
Financial
- ---------------------------------------------------------------------------
Tire and Rubber .27%
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals - Major
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Leisure Time
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Public Utilities -
Electric
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Textiles and Apparel .40%
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
International Oil
- ---------------------------------------------------------------------------
Total 1.57% 1.52% 1.35% .40% .34% .27%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Singa-
poreChile TurkeyPortugalMalaysia Total
- ---------------------------------------------------------------------------
Building 13.09%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .13% 9.40%
- ---------------------------------------------------------------------------
Multi-Industry 8.01%
- ---------------------------------------------------------------------------
Retailing 6.76%
- ---------------------------------------------------------------------------
Telecommunications 6.66%
- ---------------------------------------------------------------------------
Automotive .15% 6.56%
- ---------------------------------------------------------------------------
Engineering and
Construction .21% 5.45%
- ---------------------------------------------------------------------------
Machinery 5.43%
- ---------------------------------------------------------------------------
Steel 4.03%
- ---------------------------------------------------------------------------
Electrical Equipment 3.82%
- ---------------------------------------------------------------------------
Packaging and
Containers 2.21%
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances 2.19%
- ---------------------------------------------------------------------------
Publishing and
Advertising 2.13%
- ---------------------------------------------------------------------------
Food and Related 1.74%
- ---------------------------------------------------------------------------
Insurance 1.49%
- ---------------------------------------------------------------------------
Paper 1.48%
- ---------------------------------------------------------------------------
Airlines 1.34%
- ---------------------------------------------------------------------------
Electronics 1.30%
- ---------------------------------------------------------------------------
Shipping 1.25%
- ---------------------------------------------------------------------------
Financial 1.16%
- ---------------------------------------------------------------------------
Tire and Rubber 1.15%
- ---------------------------------------------------------------------------
Trucking 1.07%
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply .20% 1.00%
- ---------------------------------------------------------------------------
Chemicals - Major .99%
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .92%
- ---------------------------------------------------------------------------
Leisure Time .10% .73%
- ---------------------------------------------------------------------------
Metals and Mining .72%
- ---------------------------------------------------------------------------
Public Utilities -
Electric .69%
- ---------------------------------------------------------------------------
Household Products .51%
- ---------------------------------------------------------------------------
Computers and
Office Equipment .40%
- ---------------------------------------------------------------------------
Textiles and Apparel .40%
- ---------------------------------------------------------------------------
Hospital Management .28%
- ---------------------------------------------------------------------------
International Oil .16%
- ---------------------------------------------------------------------------
Total .21% .20% .15% .13% .10% 94.52%
- ---------------------------------------------------------------------------
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
Assets
Investment securities -- at value (Notes 1 and 3) . $642,681,227
Cash ............................................ 1,807,131
Receivables:
Investment securities sold ...................... 4,514,844
Fund shares sold ................................ 2,366,382
Dividends and interest .......................... 1,555,326
Prepaid insurance premium ......................... 22,960
------------
Total assets .................................. 652,947,870
------------
Liabilities
Payable for investment securities purchased ...... 11,594,539
Payable for Fund shares redeemed ............ ..... 1,761,740
Accrued service fee .............................. 151,879
Accrued transfer agency and dividend disbursing .. 147,823
Accrued accounting services fee ................... 5,833
Other ............................................ 232,264
------------
Total liabilities ............................. 13,894,078
------------
Total net assets ............................. $639,053,792
============
Net Assets
$1.00 par value capital stock, authorized --
300,000,000; shares outstanding -- 77,524,613
Capital stock ................................... $ 77,524,613
Additional paid-in capital ...................... 485,996,513
Accumulated undistributed income:
Accumulated undistributed net investment loss ... (836,703)
Accumulated net realized gain on
investment transactions ....................... 9,756,877
Net unrealized appreciation in value
of investments at end of period ............... 66,617,416
Net unrealized depreciation in value of foreign
currency exchange at end of period ............ (4,924)
------------
Net assets applicable to outstanding
units of capital ............................. $639,053,792
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.24
Sales load (offering price x 5.75%) ................ .50
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $8.74
=====
On sales of $100,000 or more the sales load
is reduced as set forth in the Prospectus.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
Assets
Investment securities -- at value (Notes 1 and 3) . $562,422,794
Cash ............................................ 16,416
Receivables:
Investment securities sold ...................... 12,210,553
Dividends and interest .......................... 2,237,135
Fund shares sold ................................ 1,689,665
Prepaid insurance premium ......................... 30,441
------------
Total assets .................................. 578,607,004
------------
Liabilities
Payable for investment securities purchased ...... 5,084,179
Payable for Fund shares redeemed ............ ..... 713,421
Accrued transfer agency and dividend disbursing .. 117,077
Accrued service fee .............................. 106,146
Accrued accounting services fee ................... 5,833
Other ............................................ 124,285
------------
Total liabilities ............................. 6,150,941
------------
Total net assets ............................. $572,456,063
============
Net Assets
$1.00 par value capital stock, authorized --
300,000,000; shares outstanding -- 63,782,659
Capital stock ................................... $ 63,782,659
Additional paid-in capital ...................... 378,487,329
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,452,615
Accumulated net realized gain on
investment transactions ....................... 55,438,157
Net unrealized appreciation in value
of investments at end of period ............... 73,295,303
------------
Net assets applicable to outstanding
units of capital ............................. $572,456,063
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.98
Sales load (offering price x 5.75%) ................ .55
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $9.53
=====
On sales of $100,000 or more the sales load
is reduced as set forth in the Prospectus.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended DECEMBER 31, 1994
Investment Income
Income:
Dividends (net of foreign withholding
taxes of $467,369) ............................ $ 2,540,916
Interest ........................................ 667,102
-----------
Total income .................................. 3,208,018
-----------
Expenses (Note 2):
Investment management fee ....................... 2,303,972
Transfer agency and dividend disbursing ......... 638,426
Custodian fees .................................. 509,473
Service fee ..................................... 390,378
Accounting services fee ......................... 35,000
Audit fees ...................................... 18,053
Legal fees ...................................... 11,004
Other ........................................... 140,209
-----------
Total expenses ................................ 4,046,515
-----------
Net investment loss ......................... (838,497)
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 19,315,337
Realized net loss on foreign currency
transactions .................................... (968,722)
-----------
Realized net gain on investments ................ 18,346,615
-----------
Unrealized depreciation in value of securities
during the period................................ (6,498,487)
Unrealized depreciation on open forward
currency contracts during the period ............ (179,400)
Unrealized depreciation in value of foreign
currency exchange at end of period .............. (4,924)
-----------
Unrealized depreciation on investments .......... (6,682,811)
-----------
Net gain on investments ....................... 11,663,804
-----------
Net increase in net assets resulting from
operations ................................. $10,825,307
===========
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1994
Investment Income
Income:
Dividends (net of foreign withholding
taxes of $986,095) ............................ $ 8,030,240
Interest ........................................ 519,894
------------
Total income .................................. 8,550,134
------------
Expenses (Note 2):
Investment management fee ....................... 3,451,650
Transfer agency and dividend disbursing ......... 980,548
Custodian fees .................................. 690,995
Service fee ..................................... 411,578
Accounting services fee ......................... 63,333
Audit fees ...................................... 29,311
Legal fees ...................................... 7,380
Other ........................................... 153,508
------------
Total expenses ................................ 5,788,303
------------
Net investment income ........................ 2,761,831
------------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 70,675,621
Realized net gain on forward currency contracts ... 805,983
------------
Realized net gain on investments ................ 71,481,604
------------
Unrealized appreciation in value of securities
during the period................................ 38,829,585
Unrealized depreciation on open forward
currency contracts during the period ............ (1,312,448)
------------
Unrealized appreciation on investments .......... 37,517,137
------------
Net gain on investments ....................... 108,998,741
------------
Net increase in net assets resulting from
operations ................................. $111,760,572
============
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the six For the fiscal year
months ended ended June 30,
December 31, -------------------------
1994 1994 1993
------------ ------------ ------------
Increase in Net Assets
Operations:
Net investment
income (loss) ........... $ (838,497)$ 2,761,831 $ 3,379,206
Realized net gain
on investments .......... 18,346,615 71,481,604 6,585,093
Unrealized appreciation
(depreciation) .......... (6,682,811) 37,517,137 (1,362,743)
------------- ------------ ------------
Net increase in net assets
resulting from operations 10,825,307 111,760,572 8,601,556
------------- ------------ ------------
Dividends to shareholders from:*
Net investment income...... (1,450,821) (2,383,629) (3,253,570)
Realized gains on securities
transactions ............. (64,027,895) (25,486,802) (2,180,166)
------------- ------------ ------------
(65,478,716) (27,870,431) (5,433,736)
------------- ------------ ------------
Capital share transactions:
Proceeds from sale of shares
(8,972,279, 18,563,121 and
6,682,190 shares,
respectively) ........... 85,538,648 167,996,208 45,742,504
Proceeds from reinvestment
of dividends and/or capital
gains distribution (7,787,655,
3,149,966 and 788,115 shares,
respectively) ............ 64,481,819 27,280,780 5,264,217
Payments for shares redeemed
(3,017,980, 4,880,995 and
5,930,817 shares,
respectively) ........... (28,769,329) (43,092,631) (40,327,132)
------------- ------------ ------------
Net increase in net assets
resulting from capital share
transactions ........... 121,251,138 152,184,357 10,679,589
------------- ------------ ------------
Total increase ......... 66,597,729 236,074,498 13,847,409
Net Assets
Beginning of period ........ 572,456,063 336,381,565 322,534,156
------------- ------------ ------------
End of period ............... $639,053,792 $572,456,063 $336,381,565
============= ============ ============
Undistributed net investment
income (loss) ........... ($836,703) $1,452,615 $1,074,413
======== ========== ==========
*See "Financial Highlights" on page 87.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the
six months
ended For the fiscal year ended June 30,
December 31, -----------------------------------------------------------------------------------------------
1994 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period .... $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70 $5.92
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss) (0.01) .04 .07 .08 .12 .12 .15 .11 .07 .13 .18
Net realized and
unrealized gain
(loss) on
investments .22 2.32 .11 1.20 (0.83) .83 (0.15) (0.39) 2.44 2.76 .58
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... .21 2.36 .18 1.28 (0.71) .95 0.00 (0.28) 2.51 2.89 .76
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from
net investment
income ..... (0.02) (0.04) (0.07) (0.09) (0.12) (0.13) (0.13) (0.13) (0.08) (0.15) (0.23)
Distributions from
capital gains (0.93) (0.50) (0.05) (0.03) 0.00 (0.26) (0.26) (2.06) (1.62) (0.18) (0.75)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.95) (0.54) (0.12) (0.12) (0.12) (0.39) (0.39) (2.19) (1.70) (0.33) (0.98)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $8.24 $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* .. 2.26% 33.31% 2.62% 21.59% -10.50% 15.44% 0.03% -1.30% 38.23% 52.82% 15.06%
Net assets, end
of period
(000 omitted) $639,054 $572,456 $336,382 $322,534 $259,322 $291,691 $258,168 $289,920 $291,897 $188,916 $107,691
Ratio of
expenses to
average
net assets ... 1.26%** 1.20% 1.18% 1.18% 1.20% 1.17% 1.13% 1.12% 1.07% 1.09% 1.16%
Ratio of net
investment income
to average
net assets ... -0.26%** 0.57% 1.07% 1.17% 1.89% 1.81% 2.29% 1.47% 0.97% 1.94% 3.46%
Portfolio turn-
over rate*** . 48.46%** 83.76% 94.22% 112.82% 118.05% 196.43% 193.01% 228.98% 216.66% 167.97% 132.48%
</TABLE>
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
***This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the lesser of its purchases or sales
in the period, excluding short-term securities.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE 1 -- Significant Accounting Policies
United International Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. 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 major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using NASDAQ
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Securities for which quotations are not readily
available are valued as determined in good faith in accordance with
procedures established by and under the general supervision of the Fund's
Board of Directors. Short-term debt securities are valued at amortized
cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date except that certain dividends from foreign securities are
recorded as soon as the Fund is informed of the ex-dividend date. Interest
income is recorded on the accrual basis. See Note 3 -- Investment
Securities Transactions.
C. Foreign currency translations -- All assets and liabilities expressed in
foreign currencies are converted into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars at the end of the
respective period. The cost of portfolio securities is translated at the
rates of exchange prevailing when acquired. Income is translated at rates
of exchange prevailing when accrued or received. The resulting transaction
exchange gains or losses have been included in the results of operations
with the type of transaction giving rise to the gain or loss.
D. Forward foreign currency exchange contracts -- A forward foreign currency
exchange contract (Forward Contract) is an obligation to purchase or sell a
specific currency at a future date at a fixed price. Forward Contracts are
"marked-to-market" daily at the applicable translation rates and the
resulting unrealized gains or losses are reflected in the Fund's financial
statements. Gains or losses are realized by the Fund at the time the
forward contract is extinguished. Contracts may be extinguished by either
entry into a closing transaction or by delivery of the currency. Risks may
arise from the possibility that the other party will not complete the
obligations of the contract and from unanticipated movements in the value
of the foreign currency relative to the U.S. dollar.
E. 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 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.
F. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. During the fiscal year ended
June 30, 1994, the Fund adopted Statement of Position 93-2 Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly,
permanent book and tax basis differences relating to future shareholder
distributions have been reclassified to additional paid-in capital. As of
July 1, 1993, the cumulative effect of such differences totaling $189,111
was reclassified from accumulated undistributed net realized gain on
investment transactions to additional paid-in capital. Net investment
income, net realized gains and net assets were not affected by this change.
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 $11.0 billion of
combined net assets at December 31, 1994) 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
At present, the Fund operates under state expense requirements which limit
the amount of aggregate annual expenses, adjusted for certain excess custodian
fees, that the Fund may incur during its fiscal year. The Manager will
reimburse the Fund for any expenses in excess of the limitation. No such
reimbursement was required for the period ended June 30, 1994 or for the period
ended December 31, 1994.
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 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. The Fund also reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, for the year ended June 30,
1994, W&R received direct and indirect gross sales commissions (which are not an
expense of the Fund) of $5,013,005, out of which W&R paid sales commissions of
$2,788,342 and all expenses in connection with the sale of Fund shares, except
for registration fees and related expenses. For the six months ended December
31, 1994, W&R received direct and indirect gross sales commissions of
$2,492,450, out of which W&R paid sales commissions of $1,462,580.
On September 28, 1993, shareholders of the Fund approved the adoption of a
12b-1 Service Plan with a maximum fee of .25%. The Plan went into effect
October 1, 1993.
The Fund paid Directors' fees of $15,917 for the year ended June 30, 1994
and $10,975 for the six months ended December 31, 1994.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Securities Transactions
For the year ended June 30, 1994, purchases of investment securities, other
than U.S. Government and short-term securities, aggregated $492,129,357 while
proceeds from maturities and sales aggregated $389,762,151. Purchases of short-
term securities aggregated $317,808,894 while proceeds from maturities and sales
of short-term securities aggregated $304,608,806. No U.S. Government securities
were bought or sold during the period.
For the six months ended December 31, 1994, purchases of investment
securities, other than U.S. Government and short-term securities, aggregated
$198,007,524 while proceeds from maturities and sales aggregated $148,651,129.
Purchases of short-term securities aggregated $275,248,297 while proceeds from
maturities and sales of short-term securities aggregated $231,980,417. No U.S.
Government securities were bought or sold during the period.
For Federal income tax purposes, cost of investments owned at June 30, 1994
was $489,127,491, resulting in net unrealized appreciation of $73,115,903, of
which $97,953,867 related to appreciated securities and $24,837,964 related to
depreciated securities.
For Federal income tax purposes, cost of investments owned at December 31,
1994 was $576,063,811, resulting in net unrealized appreciation of $66,617,416,
of which $112,796,222 related to appreciated securities and $46,178,806 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $70,169,156 during its fiscal year ended June 30, 1994, of which a portion
was paid to shareholders during the period ended June 30, 1994. Remaining
capital gain net income has been distributed to Fund shareholders.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United International Growth Fund, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United International Growth Fund,
Inc. (the "Fund") at June 30, 1994 and December 31, 1994, the results of its
operations for the periods then ended and the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1994 and December
31, 1994 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
January 31, 1995
