UNITED
INTERNATIONAL
GROWTH FUND,
INC.
SEMIANNUAL
REPORT
------------------------------------------
For the six months ended December 31, 1998
<PAGE>
This report is submitted for the general information of the shareholders of
United International Growth Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United International Growth Fund, Inc. current prospectus.
<PAGE>
PRESIDENT'S LETTER
DECEMBER 31, 1998
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. From every area of Waddell & Reed, including your
personal financial advisor, our goal has been to provide the best service
possible to our shareholders.
While it is impossible to predict the future direction of the markets, there are
some basic principles that we stand by that can help investors achieve their
objectives:
. Develop a financial plan that helps you pinpoint your financial objectives,
and identify specific strategies for turning your dreams into reality. There
is no better way to plan for your future.
. Invest on a regular basis. It can be one of the best ways to invest long
term and provide a hedge against market volatility.
. Adopt a long-term view to take advantage of compounding. The key to
successful investing is time, not timing. The power of compounding is
awesome and, on a long-term basis, can overwhelm any nuances of timing.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic review.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Our locally based financial advisors are ready to assist you
with your total financial plan to help you plan for your retirement, to help you
meet your education funding goals or to achieve other financial objectives.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues
that are important to you, contact your financial advisor or your local Waddell
& Reed office.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
UNITED INTERNATIONAL GROWTH FUND, INC.
PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: Long-term appreciation of
foreign securities. Not capital with realization
more than 75% in securities of income as a secondary
in any one country. consideration.
Maximum of 15% in currency STRATEGY: Invests in securities
exchange contracts (common stocks and/or
debt securities) issued
Cash Reserves by companies or
governments of any
nation.
The use of cash reserves (often invested
in money market securities) for defensive
purposes is a strategy that may be
utilized by the International Growth Fund
from time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: SEMIANNUALLY (June and
December)
<PAGE>
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Six Months Ended December 31, 1998
------------------------------------------
DIVIDEND PAID $0.03
=====
CAPITAL GAINS DISTRIBUTION $1.15
=====
NET ASSET VALUE ON
12/31/98 $9.85 adjusted to: $11.00 (A)
6/30/98 11.85
-----
CHANGE PER SHARE $(0.85)
=====
(A)This number includes the capital gains distribution of $1.15 paid in December
1998 added to the actual net asset value on December 31, 1998.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 12-31-98 14.43% 21.41%
5-year period ended 12-31-98 11.81% 13.14%
10-year period ended 12-31-98 11.43% 12.09%
*Performance data quoted represents past performance and is based on deduction
of 5.75% sales load on the initial purchase in each of the three periods.
**Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On December 31, 1998, United International Growth Fund, Inc. had net assets
totaling $1,224,124,640 invested in a diversified portfolio of:
83.10% Common Stocks
8.09% Cash and Cash Equivalents
4.71% Preferred Stocks
4.10% United States Government Security
As a shareholder of United International Growth Fund, Inc., for every $100 you
had invested on December 31, 1998, your Fund was invested by geographic region
and by industry, respectively, as follows:
$77.48 Europe
8.09 Cash and Cash Equivalents
5.65 United States
4.45 Other Regions
4.33 Pacific Basin
$15.67 Finance, Insurance and Real Estate
Contracts
32.81 Manufacturing
17.79 Transportation, Communication, Electric,
Gas and Sanitary Services
8.50 Miscellaneous Investing Institutions
8.09 Cash and Cash Equivalents
4.30 Wholesale and Retail Trade
4.10 United States Government Security
3.79 Services
3.52 Contract Construction
1.13 Environmental Quality and Housing
0.30 Mining
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Shares Value
COMMON STOCKS
Australia - 1.03%
Cable & Wireless Optus Limited* ........ 6,000,000 $ 12,610,395
Denmark - 0.61%
NeuroSearch A/S* ....................... 19,200 1,275,868
Thorkild Kristensen .................... 66,450 6,173,608
Total ................................. 7,449,476
Finland - 1.76%
Merita plc, Class A Shares ............. 500,000 3,180,750
Nokia Corporation, Series A ............ 150,000 18,373,274
Total ................................. 21,554,024
France - 11.08%
AXA-UAP ................................ 143,300 20,765,515
Compagnie Generale de Geophysique, ADR* 340,000 3,697,500
Etablissements Economiques du Casino
Guichard-Parrachon SA ................. 130,000 13,535,610
Lagardere SCA .......................... 242,125 10,287,616
Societe Bic S.A. ....................... 80,000 4,436,732
Societe Industrielle de Transports
Automobiles S.A. ...................... 52,625 13,792,444
Suez Lyonnaise des Eaux ................ 210,000 43,129,327
VIVENDI ................................ 100,000 25,940,569
Total ................................. 135,585,313
Germany - 9.22%
Bayerische Hypotheken- und Weschel-Bank AG 190,000 14,876,702
Deutsche Bank AG, Ordinary Shares ...... 211,350 12,433,472
K&M Mobel AG ........................... 133,998 1,270,276
Mannesmann AG .......................... 330,000 37,817,244
Munchener Ruckversicherungs-Gesellschaft AG 24,300 11,765,825
VBH Holding AG ......................... 205,000 4,243,415
Volkswagen AG .......................... 310,000 24,737,505
Wella AG ............................... 4,200 3,502,730
Winkler + Dunnebier AG* ................ 75,000 2,204,956
Total ................................. 112,852,125
Ireland - 1.07%
Bank of Ireland (The) .................. 600,000 13,137,075
Italy - 5.93%
Instituto Nazionale delle
Assicurazioni* ........................ 2,526,000 6,666,258
Istituto Bancario San Paolo di Torino -
Istituto Mobiliare Italiano S.p.A. .... 715,625 12,633,767
Olivetti S.p.A.* ....................... 6,300,000 21,901,451
Telecom Italia Mobile S.p.A., Risp ..... 5,000,000 31,438,936
Total ................................. 72,640,412
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Shares Value
COMMON STOCKS(Continued)
Japan - 3.30%
Bridgestone Corp. ...................... 500,000 $ 11,356,593
Matsushita Communication Industrial
Co., Ltd. ............................. 55,000 2,595,856
Nintendo Corp., Ltd. ................... 76,500 7,417,648
Sankyo Co., Ltd. ....................... 425,000 9,295,581
Yamanouchi Pharmaceutical Co., Ltd. .... 300,000 9,669,707
Total ................................. 40,335,385
Mexico - 0.45%
Grupo Elektra, S.A. de C.V., CPO ....... 3,000,000 1,520,444
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO Shares* .......... 3,000,000 3,931,348
Total ................................. 5,451,792
Netherlands - 3.69%
Benckiser N.V., Class B ................ 400,000 26,188,322
Content Beheer N.V. .................... 122,000 2,084,526
EQUANT N.V.* ........................... 13,550 942,733
ING Groep N.V. .......................... 262,189 15,979,475
Total ................................. 45,195,056
Norway - 0.49%
Merkantildata ASA ...................... 600,000 5,948,683
Portugal - 0.38%
Electricidade de Portugal, S.A., ADR ... 63,130 2,813,231
Portugal Telecom, S.A., ADS ............ 41,850 1,867,556
Total ................................. 4,680,787
Spain - 4.88%
Empresa Nacional de Electricidad, S.A. . 600,000 15,873,909
Tele Pizza, S.A.* ...................... 1,500,000 14,248,522
Telefonica de Espana, S.A. ............. 667,445 29,645,792
Total ................................. 59,768,223
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Sweden - 1.00%
Biacore International AB, ADR* ......... 100,000 $ 1,012,500
Nordbanken Holding AB .................. 1,000,000 6,444,976
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 200,000 4,781,250
Total ................................. 12,238,726
Switzerland - 9.24%
Credit Suisse Group, Registered Shares . 79,600 12,460,138
Julius Baer Holding AG ................. 5,215 17,332,708
Novartis, AG ........................... 30,000 58,973,426
Roche Holdings AG ...................... 2,000 24,404,805
Total ................................. 113,171,077
United Kingdom - 27.42%
Allied Zurich p.l.c.* .................. 1,500,000 22,555,969
AVIS Europe plc ........................ 400,000 1,669,150
Barclays PLC ............................ 364,000 7,897,207
British Aerospace Public Limited Company 1,595,068 13,603,737
Capita Group plc (The) ................. 683,000 6,290,601
COLT Telecom Group plc* ................ 1,320,000 19,969,950
Compass Group PLC ...................... 740,000 8,611,750
Corporate Services Group plc ........... 2,500,000 6,327,891
Diageo plc ............................. 664,000 7,539,637
Energis plc* ........................... 50,000 1,113,875
Freepages Group plc* ................... 1,000,000 324,187
General Electric Company plc ........... 1,449,765 13,135,777
Glaxo Wellcome plc ..................... 580,000 19,979,260
Granada Group PLC ...................... 300,000 5,256,825
Hays plc ............................... 1,645,639 14,500,137
Independent Energy Holdings plc, ADS* .. 475,000 4,289,844
JBA Holdings plc ....................... 130,000 410,638
Lloyds TSB Group plc ................... 1,045,000 14,888,768
Misys plc .............................. 2,982,480 21,767,257
Orange plc* ............................ 1,194,840 13,904,950
Sema Group plc ......................... 1,324,162 13,010,388
Siebe plc .............................. 3,810,600 15,014,240
SmithKline Beecham plc ................. 1,500,000 21,072,187
Telewest Communications plc* ........... 4,000,000 11,504,500
Tesco PLC .............................. 4,050,000 11,782,969
Vodafone Group Plc ..................... 3,639,424 59,174,305
Total ................................. 335,595,999
United States - 1.55%
ESG Re Limited ......................... 350,000 7,153,125
Intel Corporation ...................... 100,000 11,853,125
Total ................................. 19,006,250
TOTAL COMMON STOCKS - 83.10% $1,017,220,798
(Cost: $808,922,986)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Shares Value
PREFERRED STOCKS
Brazil - 0.14%
Telecomunicacoes de Sao Paulo S.A. .....12,300,000 $ 1,676,579
Germany - 4.57%
Fresenius Medical Care AG .............. 40,000 8,423,832
GEA AG ................................. 393,000 9,431,811
Marschollek, Lautenschlager und
Partner AG ............................ 54,080 30,824,983
Rhoen-Klinikum AG ...................... 71,700 7,313,254
Total ................................. 55,993,880
TOTAL PREFERRED STOCKS - 4.71% $ 57,670,459
(Cost: $36,198,078)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITY - 4.10%
United States Treasury,
7.25%, 8-15-2022 ...................... $40,300 $ 50,161,007
(Cost: $49,922,612)
SHORT-TERM SECURITIES
Auto Repair, Services and Parking - 0.73%
PHH Corp.,
6.1%, 1-15-99 ......................... $ 9,000 $ 8,978,650
Chemicals and Allied Products - 1.63%
Pfizer Inc.,
5.35%, 1-20-99 ........................ 10,000 9,971,764
SmithKline Beecham Corp.,
5.07%, 1-19-99 ........................ 10,000 9,974,650
Total ................................. 19,946,414
Electric, Gas and Sanitary Services _ 4.11%
Michigan Consolidated Gas Co.,
5.35%, 1-14-99 ........................ 25,410 25,360,910
Potomac Electric Power Co.,
5.5%, 1-22-99 ......................... 15,000 14,951,875
Public Service Electric & Gas Co.,
5.87%, 1-22-99 ........................ 10,000 9,965,758
Total ................................. 50,278,543
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Food Stores - 0.85%
Albertson's Inc.:
5.45%, 1-11-99 ........................ $ 7,550 $ 7,538,570
5.45%, 1-12-99 ........................ 2,941 2,936,102
Total ................................. 10,474,672
Insurance Carriers - 1.11%
Transamerica Finance Corp.,
5.15%, 1-19-99 ........................ 13,600 13,564,980
Nondepository Institutions _ 2.45%
American Express Company,
5.8%, 1-8-99 .......................... 23,000 22,974,061
Island Finance Puerto Rico Inc.,
5.23%, 2-5-99 ......................... 7,000 6,964,407
Total ................................. 29,938,468
Textile Mill Products - 0.28%
Sara Lee Corporation,
5.4788%, Master Note .................. 3,384 3,384,000
Tobacco Products - 1.04%
B.A.T. Capital Corp.,
5.57%, 1-22-99 ........................ 12,800 12,758,411
TOTAL SHORT-TERM SECURITIES - 12.20% $149,324,138
(Cost: $149,324,138)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
DECEMBER 31, 1998
Value
TOTAL INVESTMENT SECURITIES - 104.11% $1,274,376,402
(Cost: $1,044,367,814)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (4.11%) (50,251,762)
NET ASSETS - 100.00% $1,224,124,640
Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value (Notes 1 and 3) $1,274,376
Cash ........................................... 1
Receivables:
Dividends and interest ......................... 3,473
Fund shares sold ............................... 1,245
Prepaid insurance premium ........................ 24
----------
Total assets ................................. 1,279,119
----------
Liabilities
Payable for investment securities purchased ..... 50,322
Payable to Fund shareholders ............ ........ 3,879
Accrued service fee (Note 2) .................... 241
Accrued transfer agency and dividend
disbursing (Note 2) ............................ 268
Accrued distribution fee (Note 2) ............... 56
Accrued management fee (Note 2) ................. 23
Accrued accounting services fee (Note 2) ........ 8
Other ........................................... 197
----------
Total liabilities ............................ 54,994
----------
Total net assets ............................ $1,224,125
==========
Net Assets
$1.00 par value capital stock
Capital stock .................................. $ 124,236
Additional paid-in capital ..................... 841,675
Accumulated undistributed income:
Accumulated undistributed net investment income 800
Accumulated net realized gain on
investment transactions ...................... 27,419
Net unrealized appreciation in value
of investments ............................... 230,009
Net unrealized depreciation in value of foreign
currency exchange ............................ (14)
----------
Net assets applicable to outstanding
units of capital ............................ $1,224,125
==========
Capital shares outstanding
Class A .......................................... 123,393
Class Y .......................................... 843
Capital shares authorized .......................... 400,000
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.85
Class Y .......................................... $9.86
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended DECEMBER 31, 1998
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 7,090
Dividends (net of foreign withholding
taxes of $421) ................................ 3,133
--------
Total income .................................. 10,223
--------
Expenses (Note 2):
Investment management fee ....................... 4,228
Service fees - Class A .......................... 1,406
Transfer agency and dividend
disbursing - Class A .......................... 1,251
Custodian fees .................................. 518
Distribution fee - Class A ...................... 112
Accounting services fee ......................... 50
Audit fees ...................................... 12
Legal fees ...................................... 8
Shareholder servicing - Class Y ................. 6
Other ........................................... 131
--------
Total expenses ................................ 7,722
--------
Net investment income ....................... 2,501
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 55,905
Realized net gain on forward currency contracts .. 279
Realized net gain on foreign currency
transactions .................................... 92
--------
Realized net gain on investments ................ 56,276
--------
Unrealized depreciation in value of securities
during the period................................ (143,590)
Unrealized depreciation on open forward currency
contracts during the period ..................... (279)
Unrealized appreciation in value of foreign
currency exchange at end of period .............. 93
--------
Unrealized depreciation on investments .......... (143,776)
--------
Net loss on investments ....................... (87,500)
--------
Net decrease in net assets resulting from
operations ................................. $(84,999)
========
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the For the
six months fiscal year
ended ended
December 31, June 30,
1998 1998
Increase (Decrease) in Net Assets ------------ ------------
Operations:
Net investment income ............... $ 2,501 $ 7,502
Realized net gain on investments .... 56,276 147,877
Unrealized appreciation
(depreciation) .................... (143,776) 193,965
---------- ----------
Net increase (decrease) in net assets
resulting from operations ........ (84,999) 349,344
---------- ----------
Distributions to shareholders from (Note 1F):*
Net investment income:
Class A ........................... (3,285) (6,165)
Class Y ........................... (37) (63)
Realized gains on securities transactions:
Class A ........................... (125,569) (164,458)
Class Y ........................... (853) (1,128)
----------- ----------
(129,744) (171,814)
Capital share transactions: ---------- ----------
Proceeds from sale of shares:
Class A (46,683,877 and 97,362,755
shares, respectively) ............ 508,837 1,056,297
Class Y (49,281 and 147,574
shares, respectively) ............ 514 1,609
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (13,090,932 and 18,572,233
shares, respectively)............. 125,541 167,919
Class Y (92,677 and 131,500
shares, respectively) ............ 889 1,191
Payments for shares redeemed:
Class A (48,757,735 and 95,731,629
shares, respectively) ............ (536,459) (1,047,872)
Class Y (70,827 and 145,901
shares, respectively) ............ (757) (1,526)
---------- ----------
Net increase in net assets resulting
from capital share transactions 98,565 177,618
---------- ----------
Total increase (decrease) ...... (116,178) 355,148
Net Assets
Beginning of period .................. 1,340,303 985,155
---------- ----------
End of period, including undistributed
net investment income of $800
and $1,529, respectively ............ $1,224,125 $1,340,303
========== ==========
*See "Financial Highlights" on pages 15 - 16.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
six
months For the fiscal year ended June 30,
ended ----------------------------------
12/31/98 1998 1997 1996 1995 1994
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.85 $10.61 $8.95 $8.68 $8.98 $7.16
------ ------ ------ ----- ----- -----
Income from investment
operations:
Net investment
income .......... .02 .07 .07 .08 .07 .04
Net realized and
unrealized gain
(loss) on
investments ..... (0.84) 3.01 1.94 .86 .60 2.32
------ ------ ------ ----- ----- -----
Total from investment
operations ...... (0.82) 3.08 2.01 .94 .67 2.36
------ ------ ------ ----- ----- -----
Less distributions:
From net investment
income .......... (0.03) (0.06) (0.09) (0.07) (0.04) (0.04)
From capital gains (1.15) (1.78) (0.26) (0.60) (0.93) (0.50)
------ ------ ------ ----- ----- -----
Total distributions (1.18) (1.84) (0.35) (0.67) (0.97) (0.54)
------ ------ ------ ----- ----- -----
Net asset value,
end of period .... $9.85 $11.85 $10.61 $8.95 $8.68 $8.98
====== ====== ====== ===== ===== =====
Total return* ...... -6.68% 34.49% 23.03% 11.70% 7.98% 33.31%
Net assets, end of
period (in
millions) ........ $1,216 $1,331 $978 $771 $679 $572
Ratio of expenses
to average net
assets ........... 1.27%** 1.23% 1.28% 1.25% 1.25% 1.20%
Ratio of net
investment income
to average net
assets ........... 0.41%** 0.67% 0.78% 0.89% 0.86% 0.57%
Portfolio turnover
rate ............. 70.99% 114.34%109.71% 58.64% 57.45% 83.76%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the For the
six fiscal year period
months ended June 30, from 9/27/95*
ended --------------- through
12/31/98 1998 1997 6/30/96
-------- -------------- --------
Net asset value,
beginning of period $11.85 $10.62 $8.95 $9.21
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.04 .10 .09 .12
Net realized and
unrealized gain (loss)
on investments... (0.83) 3.00 1.95 .30
------ ------ ------ ------
Total from investment
operations ........ (0.79) 3.10 2.04 .42
------ ------ ------ ------
Less distributions:
From net investment
income........... (0.05) (0.09) (0.11) (0.08)
From capital gains (1.15) (1.78) (0.26) (0.60)
------ ------ ------ ------
Total distributions. (1.20) (1.87) (0.37) (0.68)
------ ------ ------ ------
Net asset value,
end of period ..... $9.86 $11.85 $10.62 $8.95
====== ====== ====== ======
Total return ....... -6.42% 34.71% 23.45% 5.44%
Net assets, end of
period (in
millions) ........ $8 $9 $7 $5
Ratio of expenses
to average net
assets ............ 0.97%** 0.97% 1.04% 0.98%**
Ratio of net
investment income
to average net
assets ............ 0.70%** 0.93% 1.02% 2.60%**
Portfolio
turnover rate ..... 70.99% 114.34%109.71% 58.64%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. Its investment objective is the long-term appreciation of your
investment. Realization of income is a secondary goal. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The policies are in conformity
with generally accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. 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.
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 denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. 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. The Fund uses forward
contracts to attempt to reduce the overall risk of its investments.
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 Subchapter M of the Internal
Revenue Code. In addition, the Fund intends to pay distributions as
required to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
F. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the business day following record date. Net
investment income dividends and capital gains distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are due to differing
treatments for items such as deferral of wash sales and post-October
losses, foreign currency transactions, net operating losses and expiring
capital loss carryovers.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .30% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $21.0 billion of
combined net assets at December 31, 1998) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$2,132,233, out of which W&R paid sales commissions of $1,236,206 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts. The Fund incurred $111,863 and
$1,406,682 in distribution and service fees, respectively.
The Fund paid Directors' fees of $21,537, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than short-term securities,
aggregated $686,684,966 while proceeds from maturities and sales aggregated
$720,493,427. Purchases of short-term securities and U.S. Government Securities
aggregated $2,787,041,367 and $49,965,703, respectively. Proceeds from
maturities and sales of short-term securities aggregated $2,804,296,229. No
U.S. Government securities were sold during the period.
For Federal income tax purposes, cost of investments owned at December 31,
1998 was $1,044,367,814, resulting in net unrealized appreciation of
$230,008,588, of which $264,038,857 related to appreciated securities and
$34,030,269 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $148,763,058 during its fiscal year ended June 30, 1998, which has been
distributed to Fund shareholders.
NOTE 5 -- Multiclass Operations
On July 4, 1995, the Fund was authorized to offer investors two classes of
shares, Class A and Class Y, each of which has equal rights as to assets and
voting privileges. Class Y shares are not subject to a sales charge on
purchases; they are not subject to a Rule 12b-1 Distribution and Service Plan
and have a separate transfer agency and dividend disbursement services fee
structure. A comprehensive discussion of the terms under which shares of either
class are offered is contained in the prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United International Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United International Growth Fund, Inc. (the
"Fund") as of December 31, 1998, and the related statement of operations for the
six-month period then ended, the statement of changes in net assets for the six-
month period then ended and the fiscal year ended June 30, 1998, and the
financial highlights for the six-month period ended December 31, 1998 and for
each of the five fiscal years in the period ended June 30, 1998. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of United
International Growth Fund, Inc. as of December 31, 1998, the results of its
operations for the six-month period then ended, the changes in its net assets
for the six-month period then ended and the fiscal year ended June 30, 1998, and
the financial highlights for the six-month period ended December 31,1998 and for
each of the five fiscal years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Thomas A. Mengel, Vice President
Lower sales charges are available by combining the net asset value (_NAV_) of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
Any person who was a holder of an uncompleted Plan on May 30, 1996, with a
face amount of less than $12,000, may purchase Class A shares of the Fund at
NAV, up to the amount representing the unpaid balance of the Plan, if the
purchase order is so designated.
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
THE UNITED GROUP OF MUTUAL FUNDS
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
- ------------------------------------
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1002SA(12-98)
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