<PAGE>
- ------------------------------------------------------------------------------
W.P. STEWART & CO. GROWTH FUND, INC.
- ------------------------------------------------------------------------------
Annual Report
December 31, 1998
<PAGE>
- ------------------------------------------------------------------------------
W. P. STEWART & CO. GROWTH FUND, INC.
ANNUAL REPORT AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------------------
MANAGEMENT COMMENTS
Review of the Year
During the past year, the Fund's net asset value increased from $168.71 on
December 31, 1997, to $213.59 on December 31, 1998 after giving effect to a
distribution of $10.71 per share. This represents a total investment return
of +33.3%.
The Fund's shares continued to gain as companies in the portfolio delivered
good earnings, and the U.S. economy remained quite strong. Interest rates and
inflation stayed at historic lows. Technology and pharmaceutical shares were
especially strong, but we saw P/E expansion in most of the Fund's holdings,
as the earnings of our companies met or exceeded expectations. The market
sustained the problems of Long Term Capital Managers, Ltd., demonstrated
confidence in the ability of the Fed to cope with the threat of a credit
crisis, and the result was that we had a strong fourth quarter performance.
The Fund continued to be minimally exposed to weaker Asian, Russian and South
American markets.
Long-term View
We have had four strong years of Fund performance, backed up by favorable
economic conditions, improved confidence, low interest rates (bolstered by
three easings in 1998), historically low inflation, and enormous liquidity in
world markets. Expanded money supply has been an important factor in the
strength of financial markets, and U.S. equities in particular continue to be
attractive to investors all over the globe.
Globally, Asia is very slow to mend, although in a few countries like Korea,
there have been signs of recovery. Japan still has a way to go. Russia is
probably worse off than it was last year, and Brazil's problems can spread to
other South American countries, and could affect Mexico as well. We still see
modest inflation elsewhere around the globe, and some countries are
experiencing deflation. We also continue to see declining interest rates.
European markets appear to be slowing. In the U.S., companies' earnings are
facing more challenges, and we see layoffs and cost cutting initiatives
picking up. Y2K spending will continue to be important this year in the U.S.
and will likely continue through mid-2000 around the globe.
There are risks to certain sectors of the market, such as Internet stocks,
and certain technology issues, whose multiples have gone way beyond anyone's
fondest dreams. A sharp correction is therefore possible in these issues. Our
expectations overall for the year for the S&P Industrials and the S&P are in
the mid single digits.
Our portfolio's growth shares are positioned to deliver meaningful unit
growth and high quality earnings growth, although at a somewhat lower level
because of lack of inflation. In this environment, the Fund's companies
should return mid teens earnings per share, which would compare quite
favorably to the broader market. We will be pleased if their share prices
perform in the same way, and this would be our current expectation. We look
forward to reporting to you again in July.
New York, N.Y.
February 19, 1999
MARILYN G. BRESLOW
PRESIDENT
W.P. Stewart & Co., Inc.
Investment Manager
1
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
COMPARISON OF A HYPOTHETICAL $50,000 INVESTMENT
W.P. STEWART & CO. GROWTH FUND VS. S&P 500*
[GRAPH]
Total Investment Return*
February 28, 1994 - December 31, 1998
- ------------------------------------------------------------------------------
W.P. Stewart & Co. Growth Fund, Before Payment of Redemption Fee 180.29%
W.P. Stewart & Co. Growth Fund, After Payment of Redemption Fee 178.89%
S&P 500 192.01%
* Total investment return is calculated assuming reinvestment of all
dividends and distributions at net asset value during the period. A
redemption fee equal to 0.5% of the gross redemption proceeds will be
charged by the Fund.
S&P 500 return assumes no transaction costs.
2
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER MARKET
AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--97.7%
BANKS--2.9%
Northern Trust Corporation............................................... 16,912 $ 1,476,629
----------------
DATA PROCESSING SERVICES--8.9%
Automatic Data Processing, Inc........................................... 56,464 4,527,707
----------------
DRUGS & HEALTH CARE--19.9%
IMS Health, Inc.......................................................... 30,756 2,320,156
Johnson & Johnson........................................................ 18,320 1,536,590
Lilly (Eli) & Company.................................................... 27,232 2,420,244
Merck & Company, Inc..................................................... 9,237 1,364,189
Pfizer, Inc.............................................................. 19,508 2,447,035
----------------
10,088,214
ELECTRICAL EQUIPMENT--3.2%
General Electric Company................................................. 15,844 1,617,078
----------------
ELECTRONICS--5.1%
Intel Corporation....................................................... 21,999 2,608,257
----------------
ENVIRONMENTAL SERVICES--4.8%
Rentokil Group PLC, ADR................................................. 32,480 2,442,633
----------------
FINANCE & BANKING--4.4%
State Street Corporation................................................ 32,393 2,253,338
----------------
FOOD & BEVERAGE--4.4%
Coca Cola Company....................................................... 22,568 1,509,235
Wrigley WM. Jr Company.................................................. 7,922 709,514
----------------
2,218,749
HOUSEHOLD PRODUCTS--4.6%
Gillette Company........................................................ 27,688 1,337,676
Procter & Gamble Company................................................ 10,773 983,710
----------------
2,321,386
LEISURE TIME--3.3%
Walt Disney Company..................................................... 54,960 1,648,800
----------------
NETWORK SOFTWARE--6.2%
Cisco Systems, Inc. (a)................................................. 33,662 3,124,254
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER MARKET
AND TITLE OF ISSUE SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS--(Continued)
RESTAURANTS--3.0%
McDonald's Corporation................................................. 19,873 $ 1,522,769
----------------
RETAIL--20.8%
Albertsons, Inc......................................................... 25,430 1,619,573
Autozone, Inc. (a)...................................................... 53,024 1,746,478
CVS Corporation......................................................... 36,469 2,005,795
Dollar General Corporation.............................................. 117,351 2,772,417
Walgreen Co............................................................. 40,629 2,379,336
----------------
10,523,599
SOFTWARE--6.2%
Microsoft Corporation (a)............................................... 22,479 3,117,556
----------------
TOTAL COMMON STOCKS-(COST $32,933,075)................ 49,490,969
----------------
TOTAL INVESTMENTS--(COST $32,933,075)--97.7% 49,490,969
OTHER ASSETS LESS LIABILITIES--2.3% 1,158,760
----------------
NET ASSETS--100.0% $ 50,649,729
----------------
----------------
</TABLE>
(a) No dividends paid on security.
ADR-American Depository Receipts
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments in securities, at market value
(Identified Cost $32,933,075).................................................... $ 49,490,969
Cash ................................................................................. 1,149,268
Dividends receivable.................................................................. 24,001
Receivable for Fund shares sold....................................................... 200,000
----------------
Total Assets..................................................................... 50,864,238
----------------
LIABILITIES:
Advisory fee payable.................................................................. 163,900
Other accrued expenses................................................................ 50,609
----------------
Total Liabilities................................................................ 214,509
----------------
NET ASSETS............................................................................ $ 50,649,729
----------------
----------------
NET ASSETS CONSIST OF:
Capital stock, $0.001 par value; 100,000,000 shares
authorized, 237,131 shares issued and outstanding................................ $ 237
Capital paid in excess of par......................................................... 33,951,256
Accumulated realized gain on investments - net........................................ 140,342
Unrealized appreciation on investments - net.......................................... 16,557,894
----------------
NET ASSETS............................................................................ $ 50,649,729
----------------
----------------
Net asset value per share............................................................. $ 213.59
----------------
----------------
Redemption price per share............................................................ $ 212.52
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $3,702).................................. $ 266,349
Interest.............................................................................. 19,005
----------------
Total investment income.......................................................... 285,354
EXPENSES:
Investment advisory fees.............................................................. 585,210
Administrative fees................................................................... 67,328
Custodian fees........................................................................ 47,523
Transfer agent fees................................................................... 42,393
Registration fees..................................................................... 18,657
Director fees......................................................................... 27,500
Miscellaneous fees.................................................................... 20,915
----------------
Total expenses .................................................................. 809,526
----------------
Net investment loss................................................................... (524,172)
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments...................................................... 2,427,262
Net change in unrealized appreciation on investments.................................. 10,121,250
----------------
Net gain on investments............................................................... 12,548,512
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................................. $ 12,024,340
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss............................................. $ (524,172) $ (401,797)
Net realized gain on investments................................ 2,427,262 4,077,134
Net change in unrealized appreciation on investments............ 10,121,250 2,831,731
------------------ -----------------
Net increase in net assets
from operations.......................................... 12,024,340 6,507,068
------------------ -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (2,348,801) (3,973,159)
------------------ -----------------
FROM FUND SHARE TRANSACTIONS:
Proceeds of shares sold......................................... 7,663,593 11,638,859
Shares issued to shareholders
in reinvestment of distributions........................... 2,268,863 4,849,063
Cost of redemptions............................................. (5,159,672) (2,649,257)
------------------ -----------------
Net increase in net assets from Fund
share transactions....................................... 4,772,784 13,838,665
------------------ -----------------
NET INCREASE IN NET ASSETS...................................... 14,448,323 16,372,574
------------------ -----------------
------------------ -----------------
NET ASSETS:
Beginning of year............................................... 36,201,406 19,828,832
------------------ -----------------
End of year..................................................... $ 50,649,729 $ 36,201,406
------------------ -----------------
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
INCOME FROM INVESTMENT OPERATIONS:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $ 168.71 $ 152.65 $ 125.94
----------- ----------- -----------
Net investment loss............................ (2.21) (1.87) (1.81)
Net realized and unrealized gain on
investments................................ 57.80 38.53 40.17
----------- ----------- -----------
Net increase from investment operations............ 55.59 36.66 38.36
Distributions to shareholders from net
realized gains on investments.................. (10.71) (20.60) (11.65)
------------ ----------- -----------
Net asset value, end of period..................... $ 213.59 $ 168.71 $ 152.65
------------ ----------- -----------
------------ ----------- -----------
TOTAL INVESTMENT RETURN (a)........................ 33.30% 24.69% 30.64%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............ 1.94% 2.13% 2.50%
Ratio of fees and expenses waived and
reimbursed by the Adviser and
Administrator to average net assets............ - 0.02% 0.28%
Ratio of net investment loss to
average net assets............................. (1.26)% (1.35)% (1.51)%
Portfolio turnover ................................ 34% 79% 76%
Net assets, end of period (in thousands) .......... $ 50,650 $ 36,201 $ 19,829
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Total investment return is calculated assuming a purchase of common stock
at net asset value at the beginning of the period, a sale at net asset
value at the end of the period, reinvestment of all dividends and
distributions at net asset value during the period and no redemption fee.
Total investment return would be reduced if the redemption fee of 0.50%
were taken into account. Total investment return for a period of less
than one year is not annualized. Past performance results shown in this
report should not be considered a representation of future performance.
Investment return will vary, and net asset value of shares, when
redeemed, may be worth more or less than their original cost.
The chart set forth above reflects the audited operating performance, based
on a share of Fund common stock outstanding, as well as total investment
return, ratios to average net assets and other supplemental data for the
periods indicated. This information has been determined based upon
information provided in the financial statements.
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FOR THE FOR THE PERIOD
YEAR FEBRUARY 28, 1994*
ENDED THROUGH
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INCOME FROM INVESTMENT OPERATIONS:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............... $ 101.06 $ 100.00
----------- -----------
Net investment loss............................ (1.15) (0.48)
Net realized and unrealized gain on
investments................................ 29.19 1.54
----------- -----------
Net increase from investment operations............ 28.04 1.06
Distributions to shareholders from net
realized gain on investments................... (3.16) -
----------- -----------
Net asset value, end of period..................... $ 125.94 $ 101.06
----------- -----------
----------- -----------
TOTAL INVESTMENT RETURN (A)......... 27.73% 1.06%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............ 2.50% 2.50% (b)
Ratio of fees and expenses waived and
reimbursed by the Adviser and
Administrator to average net assets............ 1.32% 10.20% (b)(c)
Ratio of net investment loss to
average net assets............................. (1.36)% (1.25)% (b)
Portfolio turnover ................................ 76% 9%
Net assets, end of period (in thousands) .......... $ 10,789 $ 3,109
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of investment operations.
(a) Total investment return is calculated assuming a purchase of common stock
at net asset value at the beginning of the period, a sale at net asset
value at the end of the period, reinvestment of all dividends and
distributions at net asset value during the period and no redemption fee.
Total investment return would be reduced if the redemption fee of 0.50%
was taken into account. Total investment return for a period of less than
one year is not annualized. Past performance results shown in this report
should not be considered a representation of future performance.
Investment return will vary, and net asset value of shares, when
redeemed, may be worth more or less than their original cost.
(b) Annualized.
(c) Includes organization expenses paid by Adviser.
The chart set forth above reflects the audited operating performance, based
on a share of Fund common stock outstanding, as well as total investment
return, ratios to average net assets and other supplemental data for the
periods indicated. This information has been determined based upon
information provided in the financial statements.
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
W.P. Stewart & Co. Growth Fund, Inc.
Notes to Financial Statements
December 31, 1998
- ------------------------------------------------------------------------------
1. ORGANIZATION AND FUND DESCRIPTION
W.P. Stewart & Co. Growth Fund, Inc. (the "Fund") is an open-end,
non-diversified management investment company registered under the
Investment Company Act of 1940 (the "Act"). It was incorporated under the
laws of the State of Maryland in September 1993. The Fund had no operations
prior to October 25, 1993, other than those relating to organizational
matters. The initial capital contribution of $100,000 was provided on
October 25, 1993 by W.P. Stewart & Co., N.V. in exchange for 1,000 shares
of the Fund. The Fund invests primarily in common stocks listed on the
New York Stock Exchange. W.P. Stewart & Co., Inc., a registered
investment adviser, is the Fund's investment adviser. W.P. Stewart &
Co., Inc. assumed this responsibility from its affiliate in July, 1998.
The change did not involve any change in actual control or management
of the investment adviser to the Fund. W.P. Stewart & Co., Inc. and its
predecessor are together referred to as the "Adviser." Shares of the Fund
are available for subscription by eligible investors. There is no sales
charge. The redemption fee is 0.50%.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund.
USE OF ESTIMATES: The process of preparing financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions which affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
INVESTMENT VALUATION: The Fund values its portfolio as directed by the Board
of Directors at the closing price of the New York Stock Exchange (generally
4:00 p.m. New York City time) of each business day.
In general, the Fund values its portfolio holdings as of their last available
public sale price on the valuation date, in the case of securities listed on
any established securities exchange or included in the NASDAQ National Market
System or any comparable foreign over-the-counter quotation system providing
last sale data or, if no sales of such securities are reported on such date
and in the case of over-the-counter securities not described above in this
paragraph, at the last reported bid price. In cases where securities are
traded on more than one exchange, the securities are valued on the exchange
on which the securities are principally traded. All other securities and
assets are valued at fair value as determined in good faith by or under the
direction of the Board of Directors.
INVESTMENT TRANSACTIONS: All securities transactions are recorded on a trade
date basis. Dividend income is recorded on the ex-dividend date and interest
income is recorded on the accrual basis. Realized gains and losses on sales
of securities are determined on the basis of identified cost.
SECURITIES LENDING: The Fund may lend its portfolio securities to brokers,
dealers and financial institutions when secured by collateral maintained on a
daily marked-to-market basis in an amount equal to at least 100% of the
market value, determined daily, of the loaned securities. The Fund at any
time may demand the return of the securities loaned. The Fund will continue
to receive the income on loaned securities and, at the same time, will earn
interest on the loan collateral, a portion of which generally will be rebated
to the borrower. Any cash collateral received under these loans will be
invested in short-term money market instruments. Where voting or consent
rights with respect to the loaned securities pass to the borrower, the Fund
will follow the policy of calling the loan, in whole or in part as may be
appropriate, to permit the exercise of such voting or consent rights if the
matters involved will have a material effect on the Fund's investment in the
securities loaned. The Fund did not engage in securities lending during the
year ended December 31, 1998.
10
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: A repurchase agreement customarily requires the seller
to repurchase the securities at a mutually agreed upon time and price. The
total amount received by the Fund on repurchase would be calculated to exceed
the price paid by the Fund, reflecting an agreed upon yield for the period of
time to the settlement (repurchase) date. The underlying securities are
ordinarily United States government securities, but may consist of other
securities in which the Fund is permitted to invest. Repurchase agreements
will be fully collateralized at all times. If the seller defaults in its
obligation to repurchase, the Fund may suffer a loss as a result of the cost
in liquidating the collateral and if the collateral declines in value.
ORGANIZATION EXPENSES: The Adviser has borne all costs and expenses
associated with the organization and initial registration of the Fund and its
shares.
FEDERAL INCOME TAXES: The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to registered investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to pay an
annual dividend to shareholders of record representing its entire net
investment income and to distribute all of its realized net capital gains at
least annually. Distributions are recorded on the ex-dividend date. Income
distributions and capital gain distributions are determined in accordance
with income tax regulations, which may differ from generally accepted
accounting principles. During the year ended December 31, 1998, the Fund
distributed $10.71 per share.
RECLASSIFICATION OF COMPONENTS OF NET ASSETS: During the year ended December
31, 1998, the Fund reclassified certain components of net assets. The
reclassification was the result of permanent book to tax differences
pertaining to the reclassification of the current year's net operating losses
of $524,172. The reclassification resulted in a net decrease to accumulated
realized gain on investments and paid in capital of $123,184 and 400,988,
respectively. Net assets were not affected by the change.
3. RELATED PARTY AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES
At the Annual Meeting of Shareholders of the Fund held on October 28, 1998
(the "Meeting"), Shareholders approved a proposed Investment Advisory
Services Agreement (the "New Advisory Agreement") between the Fund and W.P.
Stewart & Co., Inc. (the "Current Adviser"), effective immediately.
Shareholders also ratified the payment of advisory fees to the Current
Adviser and its predecessors (collectively, the "Adviser") for the period
from January 12, 1996 through October 28, 1998. The following numbers of
votes were cast for and against (or withheld as the case may be) and
abstained with respect to the following proposals at the Meeting; (i) to
approve the New Advisory Agreement (131,304 FOR, 588 AGAINST, and 4,018
ABSTAIN); (ii) to ratify the payment of advisory fees by the Fund to the
Adviser for the period from January 12, 1996 through October 28, 1998
(125,347 FOR, 4,222 AGAINST, and 6,342 ABSTAIN); (iii) to elect the following
seven directors; Antoine Bernheim, June Eichbaum, Robert L. Schwartz, William
Talcott May, Marilyn G. Breslow, Thomas R. LeViness and David J. Winkler, to
hold office until their successors are duly elected and qualified (each
nominee received 131,556 votes FOR and 4,356 votes WITHHELD); and (iv) to
ratify the selection of Lopez Edwards Frank & Co., LLP as the Fund's
independent accountants for the fiscal year ending December 31, 1998 (128,916
FOR, 1,449 AGAINST, and 5,547 ABSTAIN).
Under the New Advisory Agreement, the Fund pays the Current Adviser a fee of
1.5% of the Fund's average daily net assets, which is payable in arrears.
In addition to the quarterly advisory fee, the Fund bears all costs and
expenses directly related to investment transactions effected and positions
held for the Fund's account, including brokerage commissions, custodial fees,
interest on borrowings and administrative fees. The Adviser has voluntarily
agreed to waive and/or reimburse expenses of the Fund so that total Fund
operating expenses did not exceed 2.5% of the average
11
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
annual net assets of the Fund up to $30 million, 2% of the average annual net
assets of the Fund of the next $70 million, and 1.5% of the average annual
net assets of the Fund in excess of $100 million. Such voluntary waiver
and/or expense reimbursement is not required by the Investment Advisory
Services Agreement and may be discontinued at any time. In addition, the
Adviser voluntarily has borne the cost of certain professional services
incurred by the Fund, including audit, legal, insurance and other
miscellaneous expenses, although this arrangement may change in the future.
The amount of the expenses for professional services borne by the Adviser was
$152,956 for the year ended December 31, 1998.
Under the terms of both the Investment Advisory Services Agreements, an
affiliated company of the Adviser may conduct brokerage services for the
Fund. For the year ended December 31, 1998, the Adviser's affiliate earned
$47,414 in commissions as broker on trades of portfolio securities.
Two directors of the Adviser are also directors of the Fund. Each of the
directors who is not an officer or employee of the Adviser (the "Independent
Directors") is entitled to be paid by the Fund, a fee of $1,250 for each
meeting that such director attends of the Fund's Board of Directors and each
meeting of any committee of the Board of Directors on which such director
serves. During the year ended December 31, 1998, the Fund paid $16,250 and
$11,250 to the Independent Directors for their services for the years ended
December 31, 1998 and 1997, respectively.
4. ADMINISTRATION AGREEMENT
The Fund is a party to an Administration Agreement with State Street Bank and
Trust Company (the "Administrator") dated January 11, 1994. Under that
agreement, the Administrator receives an annual fee equal to 0.08% of the
Fund's net asset value up to $125 million, 0.06% of the next $125 million,
and 0.04% of assets in excess of $250 million, subject to a minimum annual
fee of $65,000.
5. INVESTMENT TRANSACTIONS
Purchases of investments and proceeds from sales of investments, excluding
short-term securities, for the year ended December 31, 1998 were $15,248,894
and $13,915,950, respectively. During 1998, the Fund reclassified $123,184 of
realized capital gains, from a redemption in-kind transaction as an increase
to paid in surplus in the Statement of Asset and Liabilities. As of December
31, 1998, unrealized appreciation and depreciation for Federal income tax
purposes was $16,446,369 and $24,522, respectively. The aggregate cost of
investments at December 31, 1998 for Federal income tax purposes was
$33,069,122.
6. FUND SHARE TRANSACTIONS
The Fund is authorized to issue 100,000,000 shares of $0.001 par value
capital stock. For the years ended December 31, 1998 and 1997 transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,1998 YEAR ENDED DECEMBER 31, 1997
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sold......................... 38,725 $ 7,663,593 70,106 $ 11,638,859
Reinvested................... 11,095 2,268,863 30,257 4,849,063
Redeemed..................... (27,270) (5,159,672) (15,677) (2,649,257)
------------- ------------- ------------- -------------
Net increase................. 22,550 $ 4,772,784 84,686 $ 13,838,665
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
7. BENEFICIAL INTEREST
At December 31, 1998, no shareholder owned more than 5% of the Fund's
outstanding shares.
12
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
- ------------------------------------------------------------------------------
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of fair value
information about financial instruments for which it is practicable to
estimate the value, whether or not recognized on the statement of financial
condition. As a registered investment company, the Fund's investments in
securities are already recorded at market value. The fair value of all other
financial assets and liabilities is considered to approximate the recorded
value, due to the short-term nature of the financial instruments.
9. CONCENTRATION OF CREDIT RISK
At December 31, 1998, the Fund had cash at a bank in excess of federally
insurable limits and was exposed to the credit risk resulting from this
concentration of cash.
10. YEAR 2000 READINESS
The services provided to the Fund by the Adviser, Administrator, Transfer
Agent and Custodian depend on the continued functioning of their computer
systems. Many computer software systems in use today cannot distinguish the
year 2000 from the year 1900 because of the way dates are encoded and
calculated. The Fund could be adversely affected if its service providers'
computer systems cannot make this distinction. The Adviser has made inquiries
on behalf of the Fund of the Administrator, Transfer Agent and Custodian
regarding whether they expect to have their computer systems adjusted for the
year 2000 transition. The Adviser has been informed that all of these service
providers expect that their systems will be Year 2000 compliant prior to that
time. Furthermore, the Adviser expects that its systems will be Year 2000
compliant prior to that time. The value of the securities of the companies
and other entities in which the Fund invests could also be adversely affected
by the "Year 2000 Problem," which could hurt the Fund's investment return.
13
<PAGE>
[LETTERHEAD OF LOPEZ EDWARDS FRANK & CO., LLP]
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
W.P. Stewart & Co. Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities
of W.P. Stewart & Co. Growth Fund, Inc., including the schedule of
investments as of December 31, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of
the two years in the period then ended, and financial highlights for each of
the four years in the period then ended, and for the period from February 28,
1994 (commencement of investment operations) through December 31, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and 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 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 W.P. Stewart & Co. Growth Fund, Inc. as of December 31, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and financial
highlights for each of the four years in the period then ended, and for the
period from February 28, 1994 (commencement of investment operations) through
December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ Lopez Edwards Frank & Co., LLP
New York, New York
February 19, 1999
[LETTERHEAD FOOTER]
<PAGE>
W.P. STEWART & CO. GROWTH FUND, INC.
527 MADISON AVENUE
NEW YORK, NY 10022
- ------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- ----------------------
Marilyn G. Breslow President and Director
John C. Russell Vice President
Robert L. Schwartz Treasurer, Secretary and Director
Lisa D. Levey Assistant Secretary
June Eichbaum Director
William Talcott May Director
Thomas R. LeViness Director
David J. Winkler Director
INVESTMENT ADVISER
- ------------------
W.P. Stewart & Co., Inc.
527 Madison Avenue
New York, NY 10022
(212) 750-8585
ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICING AGENT
- ------------------------------------------------------------------------
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
INDEPENDENT AUDITORS
- --------------------
Lopez Edwards Frank & Co., LLP
1 Penn Plaza
New York, NY 10119-0141
LEGAL COUNSEL
- -------------
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022-9998
- ------------------------------------------------------------------------------
THIS REPORT IS NOT AUTHORIZED FOR USE AS AN OFFER OF SALE OR A SOLICITATION
OF AN OFFER TO BUY SHARES OF THE FUND UNLESS ACCOMPANIED OR PRECEDED BY THE
FUND'S CURRENT PROSPECTUS. PAST PERFORMANCE RESULTS SHOWN IN THIS REPORT
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE. INVESTMENT
RETURN WILL VARY, AND NET ASSET VALUE OF SHARES, WHEN REDEEMED, MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST.
