UNITED
INTERNATIONAL
GROWTH FUND,
INC.
ANNUAL
REPORT
---------------------------------------
For the fiscal year ended June 30, 1999
<PAGE>
MANAGER'S LETTER
JUNE 30, 1999
Dear Shareholder:
This report relates to the operation of United International Growth Fund, Inc.
for the fiscal year ended June 30, 1999. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Global markets were extremely volatile during the last fiscal year. Asia
struggled to recover from the world's most serious post-war financial crisis and
Japanese corporations finally began to take the first important steps toward
restructuring. European companies implemented restructuring programs and
expanded operations across Europe to benefit from the move to a single currency.
The successful introduction of the Euro on January first encouraged further
corporate restructuring throughout Europe. Benign global inflation allowed
broad interest rate cuts, beginning in late 1998, which boosted equity flows
into the Asian region. Throughout the year, emerging markets reacted to
dramatic shifts in investor confidence.
The Fund's portfolio remains concentrated in high-quality European growth stocks
that we believe are best positioned for Europe's new single market. We
maintained somewhat of a defensive position during the second half of 1998 by
raising the Fund's cash position and taking a cautious stance regarding Asia and
other emerging markets due to the continuing global financial crisis affecting
those markets. However, in early 1999 we increased our holdings in Japan and
emerging markets by selecting companies where restructuring efforts appear most
promising and corporate culture is changing.
The strategies and techniques we applied during the fiscal year resulted in the
Fund underperforming the indexes charted on the following page. Those indexes
generally reflect the performance of the international securities market as
charted by the Morgan Stanley Captial International E.A.FE. Index (Europe,
Australia, Far East Index) and the universe of funds with similar investment
objectives (the Lipper International Fund Universe Average). Our concentration
in Europe, which contributed to outstanding performance in prior periods,
limited the Fund's performance during the past fiscal year as the U.S. dollar
remained strong relative to the Euro. Our defensive position also negatively
impacted the Fund's performance.
Foreign equity markets should remain relatively stable as U.S. interest rates
are expected to rise only modestly in coming months. Many foreign countries may
continue to lower interest rates as global inflation remains benign. Global
growth forecasts are reflecting more optimism, and Y2K concerns are diminishing.
Corporate restructuring continues to be a global theme. Improved global growth
should bring broad investment opportunities. We will continue to focus on high
quality European growth stocks while increasing our holdings in Japan and
emerging markets as we see additional evidence of important structural reforms.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Thomas Mengel
Manager, United International Growth Fund, Inc.
The Year 2000 information contained in this letter is
being designated as a Year 2000 readiness disclosure
pursuant to the Year 2000 Information and Readiness Act.
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United International Growth Fund, Inc., Class A Shares,
The Morgan Stanley Capital International E.A.FE. Index (with net dividends)
and The Lipper International Fund Universe Average
Morgan
Stanley
United Capital Lipper
Inter- Inter- International
national national Fund
Growth E.A.FE. Universe
Fund Index Average
--------- --------- ----------
06/30/89 Purchase $9,425 $10,000 $10,000
06/30/90 10,880 10,326 12,117
06/30/91 9,738 9,135 10,904
06/30/92 11,841 9,075 11,973
06/30/93 12,150 10,916 12,924
06/30/94 16,199 12,772 15,736
06/30/95 17,491 12,983 15,922
06/30/96 19,538 14,708 18,396
06/30/97 24,038 16,596 21,379
06/30/98 32,329 17,608 23,069
06/30/99 30,585 18,949 24,191
===== United International Growth Fund, Inc., Class A Shares* -- $30,585
+++++ Morgan Stanley Capital International E.A.FE. Index -- $18,949
- ---- Lipper International Fund Universe Average -- $24,191
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Average Annual Total Return +
Class A++ Class Y
-----------------------------
Year Ended
6/30/99 -10.83% -5.06%
5 Years Ended
6/30/99 12.22% N/A
10 Years Ended
6/30/99 11.83% N/A
Life of
Class Y +++ N/A 14.52%
+ Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++ Performance data quoted represents past performance and is based on
deduction of a 5.75% sales load on the initial purchase in each of the
three periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+++ 9/27/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 6/30/99.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<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 (primarily common stocks,
preferred stocks and/or
debt securities) issued
Cash Reserves by companies or
governments of any
nation.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: SEMIANNUALLY (June and
December)
PERFORMANCE SUMMARY - Class A Shares
PER SHARE DATA
For the Fiscal Year Ended June 30, 1999
---------------------------------------
DIVIDENDS PAID $0.045
======
CAPITAL GAINS DISTRIBUTION $1.15
=====
NET ASSET VALUE ON
6/30/99 $9.97 adjusted to: $11.12(A)
6/30/98 11.85
------
CHANGE PER SHARE $(0.73)
======
(A)This number includes the capital gains distribution of $1.15 paid in December
1998 added to the actual net asset value on June 30, 1999.
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 6-30-99 -10.83% -5.40%
5-year period ended 6-30-99 12.22% 13.56%
10-year period ended 6-30-99 11.83% 12.49%
*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 June 30, 1999, United International Growth Fund, Inc. had net assets totaling
$1,261,370,207 invested in a diversified portfolio of:
87.41% Common Stocks
7.14% Cash and Cash Equivalents and Open Forward
Currency Contracts
5.45% Preferred Stocks
As a shareholder of United International Growth Fund, Inc., for every $100 you
had invested on June 30, 1999, your Fund was invested by geographic region and
by industry, respectively, as follows:
$60.24 Europe
18.59 Pacific Basin
7.14 Cash and Cash Equivalents and Open Forward Currency
Contracts
5.56 Other Regions
5.35 Scandinavia
3.12 United States
$25.55 Manufacturing
23.91 Transportation, Communication, Electric,
Gas and Sanitary Services
13.41 Miscellaneous Investing Institutions
13.40 Finance, Insurance and Real Estate
Contracts
7.14 Cash and Cash Equivalents and Open Forward Currency
Contracts
5.97 Services
4.67 Wholesale and Retail Trade
3.00 Contract Construction
2.01 Mining
0.94 Environmental Quality and Housing
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1999
Shares Value
COMMON STOCKS
Australia - 1.26%
Cable & Wireless Optus Limited* ........ 3,490,000 $ 7,936,902
Cable & Wireless Optus Limited (A)* .... 3,510,000 7,982,386
Total ................................. 15,919,288
Canada - 2.36%
AT&T Canada Inc.* ...................... 264,500 16,877,572
Rogers Communications Inc., Class B* ... 800,000 12,845,407
Total ................................. 29,722,979
Denmark - 0.44%
TK Development A/S ..................... 62,950 5,495,379
Finland - 2.56%
Nokia, AB .............................. 230,500 20,193,990
UPM-Kymmene Corporation ................ 392,300 12,130,308
Total ................................. 32,324,298
France - 9.54%
AXA-UAP ................................ 143,300 17,472,828
ALTRAN TECHNOLOGIES .................... 18,316 4,832,845
Cap Gemini N.V. ........................ 84,600 13,288,856
Elf Acquitaine ......................... 78,360 11,492,952
Lagardere SCA .......................... 242,125 9,009,052
Societe Generale, Class A .............. 82,600 14,549,712
Societe Industrielle de Transports
Automobiles S.A. ...................... 52,625 11,900,385
Suez Lyonnaise des Eaux ................ 210,000 37,856,580
Total ................................. 120,403,210
Germany - 5.64%
Bayer Group (The) ...................... 300,000 12,492,084
EM.TV & Merchandising AG ............... 10,000 14,069,055
Mannesmann AG .......................... 146,600 21,864,260
SGL CARBON Aktiengesellschaft* ......... 50,000 3,865,125
Siemens AG ............................. 200,000 15,419,272
VBH Holding AG ......................... 205,000 3,401,825
Total ................................. 71,111,621
Hong Kong - 0.50%
Hutchison Whampoa Limited, Ordinary Shares 700,000 6,338,046
Ireland - 1.84%
Bank of Ireland (The) .................. 745,159 12,572,195
CRH public limited company ............. 600,000 10,627,611
Total ................................. 23,199,806
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1999
Shares Value
COMMON STOCKS(Continued)
Italy - 3.63%
Banca Monte dei Paschi di
Siena S.p.A. (A)* ..................... 1,222,500$ 5,418,132
Istituto Bancario San Paolo di Torino -
Istituto Mobiliare Italiano S.p.A. .... 1,000,000 13,605,240
Seat-Pagine Gialle S.p.A. .............. 6,000,000 5,101,965
Telecom Italia Mobile S.p.A., Risp ..... 4,000,000 21,685,928
Total ................................. 45,811,265
Japan - 16.83%
Asahi Chemical Industry Co., Ltd. ...... 2,000,000 11,095,035
Canon Inc. ............................. 600,000 17,262,618
Fuji Bank, Limited (The) ............... 871,000 6,077,665
FUJITSU LIMITED ........................ 600,000 12,078,872
Hitachi, Ltd. .......................... 1,500,000 14,075,483
Kao Corporation ........................ 500,000 14,054,814
Matsushita Communication Industrial
Co., Ltd. ............................. 200,000 14,302,840
Matsushita Electric Industrial ......... 800,000 15,542,971
NEC Corporation ........................ 458,000 5,698,731
NKK CORPORATION* ....................... 1,000,000 818,486
NTT Mobile Communications Network, Inc. 2,000 27,117,523
Nippon Express Co., Ltd. ............... 1,063,000 6,371,585
Nippon Telegraph and Telephone Corporation 1,500 17,485,842
ROHM CO., LTD. ......................... 111,300 17,437,353
Sumitomo Electric Industries, Ltd. ..... 1,257,000 14,299,797
Takeda Chemical Industries, Ltd. ....... 400,000 18,552,354
Total ................................. 212,271,969
Mexico - 1.56%
Fomento Economico Mexicano, S.A de C.V. 3,000,000 12,001,910
Grupo Financiero Banamex-Accival S.A.* . 3,000,000 7,640,473
Total ................................. 19,642,383
Netherlands - 8.08%
Akzo Nobel N.V. ........................ 320,000 13,456,819
Benckiser N.V., Class B ................ 301,960 16,106,161
CMG plc ................................ 300,000 7,884,855
EQUANT N.V.* ........................... 150,000 13,821,687
ING Groep N.V. .......................... 265,273 14,354,386
Koninklijke Philips Electronics N.V.,
Ordinary Shares ....................... 183,807 18,120,881
Royal Dutch Petroleum Company .......... 235,000 13,757,784
United Pan-Europe Communications N.V.* . 81,500 4,418,508
Total ................................. 101,921,081
Norway - 0.46%
Merkantildata ASA ...................... 600,000 5,786,435
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Spain - 3.10%
Banco Bilbao Vizcaya, S.A. ............. 1,000,000$ 14,440,107
Tele Pizza, S.A.* ...................... 1,500,000 7,761,171
Telefonica de Espana, S.A. ............. 350,000 16,893,688
Total ................................. 39,094,966
Sweden - 1.89%
Nordbanken Holding AB .................. 1,000,000 5,858,086
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 546,200 17,973,394
Total ................................. 23,831,480
Switzerland - 5.05%
Clariant Limited, Registered Shares .... 26,300 10,829,312
Credit Suisse Group, Registered Shares . 70,000 12,114,778
Julius Baer Holding AG ................. 5,215 14,863,572
Roche Holdings AG ...................... 1,500 15,421,733
UBS AG, Registered Shares .............. 35,000 10,448,433
Total ................................. 63,677,828
United Kingdom - 19.55%
Barclays PLC ............................ 364,000 10,584,772
Capita Group plc (The) ................. 1,080,700 11,182,107
COLT Telecom Group plc* ................ 1,417,000 29,658,671
Energis plc* ........................... 111,575 2,658,903
Energis plc (A)* ....................... 324,475 7,732,444
Granada Group PLC ...................... 500,000 9,259,588
HSBC Holdings plc (A) .................. 200,000 7,086,146
Independent Energy Holdings plc, ADS* .. 475,000 6,471,875
Invensys plc ........................... 1,000,000 4,728,300
Kingfisher plc ......................... 1,051,525 12,114,926
Lloyds TSB Group plc ................... 1,045,000 14,189,116
Misys plc .............................. 2,982,480 25,524,729
NTL Incorporated* ...................... 161,000 13,881,219
Next plc ............................... 800,000 9,708,776
Securicor plc .......................... 1,276,300 11,234,654
Sema Group plc ......................... 1,401,662 13,520,056
Telewest Communications plc* ........... 2,549,000 11,419,684
Telewest Communications plc (A)* ....... 2,948,837 13,210,979
Vodafone Group Plc ..................... 1,652,223 32,498,777
Total ................................. 246,665,722
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
United States - 3.12%
ESG Re Limited ......................... 390,000$ 5,813,438
Global TeleSystems Group, Inc.* ........ 225,000 18,217,969
Pharmacia & Upjohn, Inc. ............... 176,400 10,021,725
Transocean Offshore Incorporated ....... 200,000 5,250,000
Total ................................. 39,303,132
TOTAL COMMON STOCKS - 87.41% $1,102,520,888
(Cost: $930,207,944)
PREFERRED STOCKS
Brazil - 1.64%
Petroleo Brasileiro S.A. - Petrobras ...55,500,000$ 8,591,525
Telebras S.A., ADR ..................... 134,500 12,130,219
Total ................................. 20,721,744
Germany - 3.81%
Fresenius Medical Care AG .............. 40,000 7,070,602
Marschollek, Lautenschlager und
Partner AG ............................ 54,080 25,751,998
Rhoen-Klinikum AG ...................... 71,700 7,020,613
SAP AG ................................. 12,925 5,162,197
Wella AG ............................... 4,200 3,051,903
Total ................................. 48,057,313
TOTAL PREFERRED STOCKS - 5.45% $ 68,779,057
(Cost: $50,260,748)
UNREALIZED GAIN ON OPEN Face Amount
FORWARD CURRENCY CONTRACTS - 0.03% in Thousands
Japanese Yen, 10-8-99 ..................Y7,287,437$ 338,753
TOTAL SHORT-TERM SECURITIES - 2.97% $ 37,508,956
(Cost: $37,508,956)
TOTAL INVESTMENT SECURITIES - 95.86% $1,209,147,654
(Cost: $1,017,977,648)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 4.14% 52,222,553
NET ASSETS - 100.00% $1,261,370,207
See Notes to Schedule of Investments.
<PAGE>
Notes to Schedule of Investments
*No dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At June 30, 1999, the value of these
securities amounted to $41,430,087 or 3.28% of net assets.
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
JUNE 30, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value (Notes 1 and 3) $1,209,148
Receivables:
Fund shares sold ............................... 31,620
Investment securities sold ..................... 25,911
Dividends and interest ......................... 3,777
Prepaid insurance premium ........................ 19
----------
Total assets ................................. 1,270,475
----------
Liabilities
Payable for investment securities purchased ..... 4,748
Payable to Fund shareholders ............ ........ 2,708
Due to custodian ................................ 446
Accrued transfer agency and dividend
disbursing (Note 2) ............................ 290
Accrued service fee (Note 2) .................... 208
Accrued distribution fee (Note 2) ............... 43
Accrued management fee (Note 2) ................. 29
Accrued accounting services fee (Note 2) ........ 8
Other ........................................... 625
----------
Total liabilities ............................ 9,105
----------
Total net assets ............................ $1,261,370
==========
Net Assets
$1.00 par value capital stock
Capital stock .................................. $ 126,500
Additional paid-in capital ..................... 858,008
Accumulated undistributed income:
Accumulated undistributed net investment income 2,452
Accumulated net realized gain on
investment transactions ...................... 83,371
Net unrealized appreciation in value
of investments ............................... 190,831
Net unrealized appreciation in value of foreign
currency exchange ............................ 208
----------
Net assets applicable to outstanding
units of capital ............................ $1,261,370
==========
Capital shares outstanding
Class A .......................................... 125,559
Class Y .......................................... 941
Capital shares authorized .......................... 400,000
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.97
Class Y .......................................... $9.97
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Dividends (net of foreign withholding
taxes of $1,062) .............................. $ 13,062
Interest and amortization ....................... 9,216
--------
Total income .................................. 22,278
--------
Expenses (Note 2):
Investment management fee ....................... 8,469
Service fees - Class A .......................... 2,750
Transfer agency and dividend
disbursing - Class A .......................... 2,740
Custodian fees .................................. 1,131
Distribution fee - Class A ...................... 288
Accounting services fee ......................... 100
Audit fees ...................................... 19
Legal fees ...................................... 14
Shareholder servicing - Class Y ................. 14
Other ........................................... 378
--------
Total expenses ................................ 15,903
--------
Net investment income ....................... 6,375
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 111,891
Realized net gain on forward currency contracts .. 278
Realized net loss on foreign currency
transactions .................................... (264)
--------
Realized net gain on investments ................ 111,905
--------
Unrealized depreciation in value of securities
during the period................................ (182,768)
Unrealized appreciation on open forward currency
contracts during the period ..................... 60
Unrealized depreciation in value of foreign
currency exchange during the period ............. (24)
--------
Unrealized depreciation on investments .......... (182,732)
--------
Net loss on investments ....................... (70,827)
--------
Net decrease in net assets resulting from
operations ................................. $(64,452)
========
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
June 30,
-------------------------
1999 1998
Increase (Decrease) in Net Assets ------------ ------------
Operations:
Net investment income ............... $ 6,375 $ 7,502
Realized net gain on investments .... 111,905 147,877
Unrealized appreciation
(depreciation) .................... (182,732) 193,965
---------- ----------
Net increase (decrease) in net assets
resulting from operations ........ (64,452) 349,344
---------- ----------
Distributions to shareholders from (Note 1F):*
Net investment income:
Class A ........................... (5,120) (6,165)
Class Y ........................... (68) (63)
Realized gains on securities transactions:
Class A ........................... (125,603) (164,458)
Class Y ........................... (852) (1,128)
----------- ----------
(131,643) (171,814)
Capital share transactions: ---------- ----------
Proceeds from sale of shares:
Class A (92,391,138 and 97,362,755
shares, respectively) ............ 959,040 1,056,297
Class Y (842,161 and 147,574
shares, respectively) ............ 8,682 1,609
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (13,271,687 and 18,572,233
shares, respectively)............. 127,323 167,919
Class Y (95,800 and 131,500
shares, respectively) ............ 919 1,191
Payments for shares redeemed:
Class A (92,479,345 and 95,731,629
shares, respectively) ............ (970,805) (1,047,872)
Class Y (768,642 and 145,901
shares, respectively) ............ (7,997) (1,526)
---------- ----------
Net increase in net assets resulting
from capital share transactions 117,162 177,618
---------- ----------
Total increase (decrease) ...... (78,933) 355,148
Net Assets
Beginning of period .................. 1,340,303 985,155
---------- ----------
End of period, including undistributed
net investment income of $2,452
and $1,529, respectively ............ $1,261,370 $1,340,303
========== ==========
*See "Financial Highlights" on pages 14 - 15.
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 fiscal year ended June 30,
------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.85 $10.61 $8.95 $8.68 $8.98
------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income .......... .05 .07 .07 .08 .07
Net realized and
unrealized gain
(loss) on
investments ..... (0.74) 3.01 1.94 .86 .60
------ ------ ------ ----- -----
Total from investment
operations ...... (0.69) 3.08 2.01 .94 .67
------ ------ ------ ----- -----
Less distributions:
From net investment
income .......... (0.04) (0.06) (0.09) (0.07) (0.04)
From capital gains (1.15) (1.78) (0.26) (0.60) (0.93)
------ ------ ------ ----- -----
Total distributions (1.19) (1.84) (0.35) (0.67) (0.97)
------ ------ ------ ----- -----
Net asset value,
end of period .... $9.97 $11.85 $10.61 $8.95 $8.68
====== ====== ====== ===== =====
Total return* ...... -5.40% 34.49% 23.03% 11.70% 7.98%
Net assets, end of
period (in
millions) ........ $1,252 $1,331 $978 $771 $679
Ratio of expenses
to average net
assets ........... 1.30% 1.23% 1.28% 1.25% 1.25%
Ratio of net
investment income
to average net
assets ........... 0.52% 0.67% 0.78% 0.89% 0.86%
Portfolio turnover
rate ............. 149.45%114.34% 109.71% 58.64% 57.45%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
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 fiscal period
year ended June 30, from 9/27/95*
---------------------- through
1999 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 .......... .09 .10 .09 .12
Net realized and
unrealized gain (loss)
on investments... (0.74) 3.00 1.95 .30
------ ------ ------ ------
Total from investment
operations ........ (0.65) 3.10 2.04 .42
------ ------ ------ ------
Less distributions:
From net investment
income........... (0.08) (0.09) (0.11) (0.08)
From capital gains (1.15) (1.78) (0.26) (0.60)
------ ------ ------ ------
Total distributions. (1.23) (1.87) (0.37) (0.68)
------ ------ ------ ------
Net asset value,
end of period ..... $9.97 $11.85 $10.62 $8.95
====== ====== ====== ======
Total return ....... -5.06% 34.71% 23.45% 5.44%
Net assets, end of
period (in
millions) ........ $9 $9 $7 $5
Ratio of expenses
to average net
assets ............ 0.99% 0.97% 1.04% 0.98%**
Ratio of net
investment income
to average net
assets ............ 0.85% 0.93% 1.02% 2.60%**
Portfolio
turnover rate ..... 149.45%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
JUNE 30, 1999
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. At June 30, 1999, $264,361 was reclassified
between accumulated undistributed net investment income and accumulated
undistributed net realized gain on investment transactions. Net investment
income, net realized gains and net assets were not affected by this change.
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. Until June
30, 1999, the fee consisted 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 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. Beginning
June 30, 1999, the fee is payable by the Fund at the annual rates of: 0.85% of
net assets up to $1 billion, 0.83% of net assets over $1 billion and up to $2
billion, 0.80% of net assets over $2 billion and up to $3 billion, and 0.76% of
net assets over $3 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
$4,101,374, out of which W&R paid sales commissions of $2,374,209 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $45,305, 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 and
U.S. Government Securities, aggregated $1,602,465,849 while proceeds from
maturities and sales aggregated $1,556,762,859. Purchases of short-term
securities and U.S. Government Securities aggregated $4,300,596,006 and
$49,965,703, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government Securities aggregated $4,431,409,821 and
$50,129,422, respectively.
For Federal income tax purposes, cost of investments owned at June 30, 1999
was $1,017,985,106, resulting in net unrealized appreciation of $190,823,795, of
which $236,594,032 related to appreciated securities and $45,770,237 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $112,236,770 during its fiscal year ended June 30, 1999, of which a portion
was paid to shareholders during the period ended June 30, 1999. Remaining
capital gain net income will be distributed to Fund's 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 June 30, 1999, and the related statement of operations for the
fiscal year then ended, the statements of changes in net assets for each of the
two fiscal years in the period then ended, and the financial highlights for each
of the five fiscal years in the period then ended. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with 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 June
30, 1999, 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 June 30, 1999, the results of its
operations for the fiscal year then ended, the changes in its net assets for
each of the two fiscal years in the period then ended, and the financial
highlights for each of the five fiscal years in the period then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 6, 1999
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares owned by you on the record dates, will give you the total
amounts to be reported in your Federal income tax return for the years in which
they were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------
For Individuals For Corporations
--------------------------------------------------------
Record Ordinary Long-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ----------------------------
Class A
12-16-98 $1.1770 $0.5430 $0.6340 $0.0005 $0.5425 $0.6340
06-09-99 0.0150 0.0150 0.0000 0.0006 0.0144 0.0000
------ ------- ------- ------- ------- -------
Total $1.1920 $0.5580 $0.6340 $0.0011 $0.5569 $0.6340
====== ======= ======= ======= ======= =======
Class Y
12-16-98 $1.1960 $0.5620 $0.6340 $0.0008 $0.5612 $0.6340
06-09-99 0.0330 0.0330 0.0000 0.0012 0.0318 0.0000
------ ------- ------- ------- ------- -------
Total $1.2290 $0.5950 $0.6340 $0.0020 $0.5930 $0.6340
====== ======= ======= ======= ======= =======
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax advisor concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
Shareholder Meeting Results
A special meeting of United International Growth Fund, Inc. was held on June 22,
1999. The matters voted upon by the shareholders and the resulting votes for
each matter are presented below.
Item 1. To elect the Board of Directors:
Broker
For Withheld Non-Votes*
J. Concannon 60,037,959 2,347,106 0
J. Dillingham 60,033,985 2,351,080 0
D. Gardner 59,938,341 2,446,724 0
L. Graves 60,008,321 2,376,744 0
J. Harroz, Jr. 59,926,761 2,458,304 0
J. Hayes 59,852,515 2,532,550 0
R. Hechler 59,955,759 2,429,306 0
H. Herrmann 59,986,895 2,398,170 0
G. Johnson 59,818,672 2,566,393 0
W. Morgan 59,919,480 2,465,585 0
R. Reimer 59,914,787 2,470,278 0
F. Ross, Jr. 60,010,510 2,374,555 0
E. Schwartz 59,994,688 2,390,377 0
K. Tucker 60,015,744 2,369,321 0
F. Vogel III 60,041,299 2,343,766 0
Item 2. To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year:
Broker
For Against Abstain Non-Votes*
59,377,597 510,634 2,496,834 0
Item 3. To approve or disapprove the amendment to the Fund's investment
management agreement with Waddell & Reed Investment Management Company:
Broker
For Against Abstain Non-Votes*
54,585,381 4,518,735 3,154,062 126,887
Item 4. To approve or disapprove amendment of the Fund's policy regarding
securities lending:
Broker
For Against Abstain Non-Votes*
55,539,715 2,730,747 3,987,716 126,887
Item 5. To approve or disapprove the Fund's Articles of Incorporation to
change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
55,480,247 2,194,313 4,709,508 997
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on a
particular matter.
<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.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than five dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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>
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
<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.
- ------------------------------------
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
NUR1002A(6-99)
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