Waddell & Reed
Advisors
Bond
Fund, Inc.
ANNUAL
REPORT
------------------
September 30, 2000
<PAGE>
CONTENTS
3 Manager's Letter
6 Performance Summary
8 Portfolio Highlights
9 Investments
17 Statement of Assets and Liabilities
18 Statements of Operations
19 Statements of Changes in Net Assets
20 Financial Highlights
24 Notes to Financial Statements
31 Independent Auditors' Report
32 Income Tax Information
34 Directors & Officers
This report is submitted for the general information of the shareholders of
Waddell & Reed Advisors Bond Fund. It is not authorized for distribution
to prospective investors in the Fund unless accompanied with or preceded by
the Waddell & Reed Advisors Bond Fund current prospectus and current Fund
performance information.
<PAGE>
WADDELL & REED ADVISORS BOND FUND
MANAGER'S LETTER
SEPTEMBER 30, 2000
---------------------------------------------------------------------------
Dear Shareholder,
This report relates to the operation of the Waddell & Reed Advisors Bond
Fund for the fiscal period ended September 30, 2000. The following graphs
and tables provide you with information regarding the Fund's performance
during the period, while the following discussion provides you with
information regarding the Fund's performance during the twelve months ended
September 30, 2000. The Fund's board of directors recently approved a
change to the Fund's fiscal year-end from December 31 to September 30.
Typically, the change in interest rates is the primary barometer for the
performance of bond funds. Over the last 12 months, however, the Fund was
most affected by the shape of the yield curve, the spread between corporate
and mortgage-backed bonds, and the underlying, benchmark Treasury bond
yield. During the year, short-term rates rose almost 1.50 percentage
points, long-term rates barely moved, and the spread between mortgage-
backed securities and corporate bonds to the Treasury rate was a roller
coaster.
Short-term rates rose, but long rates held steady, despite potential
inflationary pressure. The fear of inflation, due to the economy's
strength, prompted the Fed to raise short-term rates from 5.25 percent last
October to its base rate of 6.5 percent today. This, however, did not
affect longer-term Treasury rates. Usually long rates follow Fed-affected
short rates, and usually the yield curve does not invert. The Treasury
bond yield curve is the graphic representation of expected rates of return,
for each maturity of bonds, from three-month Treasury bills to 30-year
bonds. In the past century or so, rarely has the yield curve inverted,
i.e. long-term rates drifting lower than short-term rates. This year it
happened.
It happened this year because long rates did not rise as the Fed might have
expected. The U.S. Treasury bought back some of its long-term debt, and
the U.S. dollar got stronger, calming inflation fears and luring foreign
investment to the U.S. bond market. And finally, economic productivity
seemingly offset inflation expectations.
What did change -- and this is what caused mayhem in the bond markets, we
feel - was that so-called bond spreads widened precipitously. In a normal
environment where the Treasury bond yield curve is upward sloping, all
other sorts of bonds (like bonds issued by corporations and mortgage-backed
securities, which comprise about 60 percent and 25 percent, respectively,
of the Fund's portfolio) are measured against a Treasury bond benchmark.
But with the yield curve inverted and with some market participants feeling
that long-term Treasuries were becoming extinct, the "other bonds' anchor"
was lost. Concurrently, corporate bond spreads widened from a low of
approximately 70 basis points in January 2000, to a high of approximately
140 basis points in April. Mortgage rates had similar upward movements
during the year. When interest rates and spreads go up, bond prices and
net asset value go down. These spread movements had the greatest marginal
influence on the Fund's annual rate of return.
Over the course of the year, we maintained our overweight positions --
relative to popular bond market indices -- in corporate bonds and remained
underweight in U.S. Treasury securities. This limited the portfolio's
gains from the Treasury rally that followed the Treasury's announced buy-
back program. We felt, however, the costs associated with a sale of
corporate bonds to purchase long-term Treasuries in the turbulent bond
market would be counterproductive in the long term. For the long-term
investor, we feel it wiser to maintain our higher yielding positions. We
did maintain our put bond positions. Approximately 35 percent of the
portfolio is in corporate put bonds, giving the portfolio the right to sell
the bonds back to the issuer should interest rates rise above a certain
level. And, although interest rates did not move sufficiently this year to
trigger the protective elements of this strategy, we feel that it is wise
to keep this corporate put bond position intact.
The strategies and techniques we have employed resulted in the Fund
underperforming, relative to its benchmark indices, over the last 12
months. The Fund's Class A shares declined 0.86 percent for the year,
while the Lipper Corporate Debt Funds A-Rated Universe Average returned
5.34 percent (which reflects the performance of the universe of funds with
similar investment objectives), and the Salomon Brothers Broad Investment
Grade Bond Index returned 6.92 percent for the year (which reflects the
performance of securities that generally represent the bond market). As
alluded to above, we feel this shortfall in Fund performance can be
attributed primarily to the widening corporate bond spread and our
underweighting in U.S. Treasury securities.
We believe that the economy is finally slowing and, consequently, the Fed
may be through tightening and indeed may be, in 2001, ready to ease rates.
We also believe that the yield curve should return to its more normal,
upwardly sloping shape, and that this should permit corporate and mortgage
spreads to compress. Longer-term rates may rise a bit after declining to
cyclical lows this past year. This rise may be caused by a slight increase
in inflation and perhaps a decline in the value of the U.S. dollar,
especially against the euro.
Going forward, we believe that the longer-run implications of the
government's economic policy will guide our markets, rather than the
shorter-run implications of the Treasury buy-back program. As always, we
will attempt to maintain the flexibility of the Waddell & Reed Advisors
Bond Fund.
Thank you for your continuing interest in the Fund and your ongoing
confidence in our organization.
Sincerely,
James C. Cusser
Manager, Waddell & Reed Advisors Bond Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment
+++++ Waddell & Reed Advisors Bond Fund, Class A Shares* -- $19,570
..... Salomon Brothers Broad Investment Grade Index -- $20,711
===== Lipper Corporate Debt Funds A-Rated Universe Average -- $19,659
Waddell & Reed Lipper
Advisors Salomon Corporate
Bond Brothers Debt Funds
Fund, Broad A-Rated
Class A Investment Universe
Shares Grade Index Average
------ ----------- ----------
12/31/90Purchase 9,425 10,000 10,000
12/31/91 11,195 11,597 11,704
12/31/92 12,035 12,477 12,567
12/31/93 13,623 13,711 13,965
12/31/94 12,839 13,321 13,326
12/31/95 15,471 15,793 15,846
12/31/96 15,966 16,364 16,237
12/31/97 17,526 17,938 17,728
12/31/98 18,800 19,501 19,059
12/31/99 18,596 19,339 18,583
9/30/00 19,570 20,711 19,659
*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 and
assumes reinvestment of dividends and distributions.
Average Annual Total Return+
Period Class A Class B Class C Class Y
------ ---------------------------------------------
Year Ended
9/30/00 -0.86% 0.23% 4.11% 5.49%
5 Years Ended
9/30/00 4.58% --- --- 6.05%
10 Years Ended
9/30/00 7.41% --- --- ---
Since inception
of Class++
through 9/30/00 --- 0.84% 4.50% 6.13%
+Performance data quoted represents past performance and is based on
deduction of the maximum applicable sales load for each of the periods.
Class A shares carry a maximum front-end sales load of 5.75%. Class B
and Class C shares carry maximum contingent deferred sales charges of 5%
and 1%, respectively. Total returns reflect share price appreciation,
including reinvestment of all income and capital gains distributions.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original
cost.
++9/9/99 for Class B andr Class C shares and 6/19/95 for Class Y shares
(the date on which shares were first acquired by shareholders).
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
----------------------------------------------------------------------
WADDELL & REED ADVISORS BOND FUND
PORTFOLIO STRATEGY:
Corporate and government GOAL: To seek a reasonable return
bonds with emphasis on preservation of
capital.
Maximum 10% non-debt
securities STRATEGY: Invests primarily in domestic debt
securities usually of investment
grade.
FOUNDED: 1964
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Period Ended September 30, 2000
--------------------------------------
DIVIDENDS PAID $0.27
=====
NET ASSET VALUE ON
09/30/00 $6.01
12/31/99 5.97
------
CHANGE PER SHARE $0.04
======
Past performance is not necessarily an indication of future results.
<PAGE>
SHAREHOLDER SUMMARY OF BOND FUND
AVERAGE ANNUAL TOTAL RETURN (1)
Class A Class B
----------------------- -----------------------*
With Without With Without
Period Sales Load(2) Sales Load(3) CDSC(4) CDSC(5)
------ ---------- ---------- ----------- ----------
1-year period
ended 9-30-00 -0.86% 5.19% 0.23% 4.19%
5-year period
ended 9-30-00 4.58% 5.82% --- ---
10-year period
ended 9-30-00 7.41% 8.05% --- ---
Since inception
of Class (6) --- --- 0.84% 4.58%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions. Performance
data represents past performance and is no guarantee of future results.
Share price, investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
(2)Performance data is based on deduction of 5.75% sales load on the
initial purchase in the periods.
(3)Performance data does not take into account the sales load deducted on
an initial purchase.
(4)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 5.00% upon redemption at
the end of the period.
(5)Performance data does not reflect the effect of paying the applicable
CDSC upon redemption at the end of the period.
(6)9/9/99 for Class B shares (the date on which shares were first acquired
by shareholders).
AVERAGE ANNUAL TOTAL RETURN (1)
Class C Class Y(2)
----------------------- ----------
With Without
Period CDSC(3) CDSC(4)
------ ---------- ----------
1-year period
ended 9-30-00 4.11% 4.11% 5.49%
5-year period
ended 9-30-00 --- --- 6.05%
10-year period
ended 9-30-00 --- --- ---
Since inception
of Class (5) 4.50% 4.50% 6.13%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions. Performance
data represents past performance and is no guarantee of future results.
Share price, investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
(2)Performance data does not include the effect of sales charges, as Class
Y shares are not subject to these charges.
(3)Performance data reflects the effect of paying the applicable contingent
deferred sales charge (CDSC) at a maximum of 1.00% which declines to
zero at the end of the first year after investment. (Accordingly, these
returns reflect no CDSC since it only applies to Class C shares held for
twelve months or less.)
(4)Performance date does not reflect the effect of paying the applicable
CDSC upon redemption at the end of the period.
(5)9/9/99 for Class C shares and 6/19/95 for Class Y shares (the date on
which shares were first acquired by shareholders).
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors Bond Fund had net assets
totaling $504,109,315 invested in a diversified portfolio of:
94.90% Bonds
5.10% Cash and Cash Equivalents
As a shareholder of Waddell & Reed Advisors Bond Fund, for every $100 you
had invested on September 30, 2000, your Fund owned:
Bonds:
Corporate $52.54
U.S. Government 34.96
Other Government 7.40
Cash and Cash Equivalents 5.10
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 2.10%
Procter & Gamble Company (The),
8.0%, 9-1-24 .......................... $ 10,000 $10,589,000
Communication - 4.95%
BellSouth Capital Funding Corporation,
7.875%, 2-15-30 ....................... 1,875 1,934,156
BellSouth Telecommunications, Inc.,
5.85%, 11-15-45 ....................... 3,000 2,995,710
Cox Trust II,
7.0%, 8-16-04 ......................... 2,500 2,471,025
Deutsche Telekom International Finance B.V.,
8.25%, 6-15-30 ........................ 4,000 4,104,520
Jones Intercable, Inc.,
9.625%, 3-15-02 ....................... 2,500 2,571,375
Koninklijke KPN N.V.:
8.0%, 10-1-10 (A) ..................... 2,000 2,012,500
8.375%, 10-1-30 (A) ................... 1,000 1,010,000
Tele-Communications, Inc.,
8.35%, 2-15-05 ........................ 7,500 7,836,900
Total ................................. 24,936,186
Depository Institutions - 10.00%
AmSouth Bancorporation,
6.75%, 11-1-25 ........................ 6,500 6,273,540
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-05 ........................ 1,500 1,411,875
First Union Corporation:
6.824%, 8-1-26 ........................ 7,500 7,313,325
6.55%, 10-15-35 ....................... 4,500 4,364,775
ING Groep N.V.,
5.5%, 5-11-05 (B) ..................... EUR4,000 3,516,880
Kansallis-Osake-Pankki,
10.0%, 5-1-02 ......................... $6,000 6,245,880
NationsBank Corporation,
8.57%, 11-15-24 ....................... 5,000 5,353,400
SouthTrust Bank of Alabama, National Association,
7.69%, 5-15-25 ........................ 9,750 9,881,333
Sovereign Bancorp, Inc.,
8.0%, 3-15-03 ......................... 2,000 1,907,500
Wachovia Corporation,
6.605%, 10-1-25 ....................... 4,250 4,140,307
Total ................................. 50,408,815
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Electric, Gas and Sanitary Services - 6.10%
California Infrastructure and Economic Development
Bank, Special Purpose Trust:
PG&E-1,
6.42%, 9-25-08 ........................ $5,000 $4,912,850
SCE-1,
6.38%, 9-25-08 ........................ 5,000 4,914,050
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-05 ......................... 4,000 4,055,560
Entergy Arkansas, Inc.,
7.5%, 8-1-07 .......................... 3,750 3,699,113
Korea Electric Power Corporation,
6.375%, 12-1-03 ....................... 2,500 2,417,525
Niagara Mohawk Power Corporation,
7.375%, 7-1-03 ........................ 4,159 4,169,558
TXU Eastern Funding Company,
6.45%, 5-15-05 ........................ 3,250 3,074,532
Union Electric Co.,
8.25%, 10-15-22 ....................... 3,500 3,514,735
Total ................................. 30,757,923
Electronic and Other Electric Equipment - 1.81%
Motorola, Inc.,
8.4%, 8-15-31 ......................... 8,500 9,125,430
Finance, Taxation and Monetary Policy - 0.48%
Banco Nacional de Comercio Exterior, S.N.C.,
7.25%, 2-2-04 ......................... 2,500 2,420,000
Food and Kindred Products - 2.17%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-05 .......................... 3,000 2,967,900
Coca-Cola Enterprises Inc.,
6.7%, 10-15-36 ........................ 5,500 5,439,555
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-06 ........................ 2,500 2,512,500
Total ................................. 10,919,955
General Merchandise Stores - 1.10%
Fred Meyer, Inc.,
7.45%, 3-1-08 ......................... 5,750 5,559,330
Health Services - 1.28%
HCA - The Healthcare Company,
8.75%, 9-1-10 ......................... 1,500 1,530,420
Tenet Healthcare Corporation,
7.875%, 1-15-03 ....................... 5,000 4,937,500
Total ................................. 6,467,920
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Holding and Other Investment Offices - 2.39%
Bay Apartment Communities, Inc.,
6.5%, 1-15-05 ......................... $3,000 $2,865,630
GRUMA, S.A. de C.V.,
7.625%, 10-15-07....................... 3,500 2,791,250
NBD Bank, National Association,
8.25%, 11-1-24 ........................ 6,000 6,381,060
Total ................................. 12,037,940
Industrial Machinery and Equipment - 1.17%
Coltec Industries Inc.,
7.5%, 4-15-08 ......................... 2,500 2,423,225
International Business Machines Corporation,
5.375%, 3-31-05 (B) ................... EUR4,000 3,491,018
Total ................................. 5,914,243
Insurance Carriers - 0.01%
Reliance Group Holdings, Inc.,
9.0%, 11-15-00 ........................ $ 150 48,000
Nondepository Institutions - 8.39%
Asset Securitization Corporation,
7.49%, 4-14-29 ........................ 6,000 6,106,260
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-10 (A) .................... 8,500 7,964,755
Equicon Loan Trust,
7.3%, 2-18-13 ......................... 4,240 4,224,404
General Motors Acceptance Corporation:
5.5%, 2-2-05 (B) ...................... EUR3,750 3,255,537
8.875%, 6-1-10 ........................ $5,500 5,972,395
IMC Home Equity Loan Trust,
6.9%, 1-20-22 ......................... 4,500 4,476,060
Norse CBO, Ltd. and Norse CBO, Inc.,
6.515%, 8-13-10 (A) ................... 3,750 3,500,137
Residential Asset Securities Corporation,
8.0%, 10-25-24 ........................ 1,875 1,876,918
Westinghouse Electric Corporation,
8.875%, 6-14-14 ....................... 4,500 4,921,335
Total ................................. 42,297,801
Oil and Gas Extraction - 1.82%
Mitchell Energy & Development Corp.,
9.25%, 1-15-02 ........................ 165 167,330
Ocean Energy, Inc.,
8.375%, 7-1-08 ........................ 3,500 3,482,500
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Oil and Gas Extraction (Continued)
Oryx Energy Company,
10.0%, 4-1-01 ......................... $3,500 $3,540,600
Pemex Finance Ltd.,
5.72%, 11-15-03 ....................... 2,031 1,971,206
Total ................................. 9,161,636
Paper and Allied Products - 2.06%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-02 ........................ 4,500 4,586,355
Champion International Corporation,
6.4%, 2-15-26 ......................... 6,100 5,825,500
Total ................................. 10,411,855
Petroleum and Coal Products - 1.15%
Pemex Finance Ltd. and Petroleos Mexicanos,
9.03%, 2-15-11 (A) .................... 1,750 1,828,050
YPF Sociedad Anoima,
8.0%, 2-15-04 ......................... 4,000 3,980,600
Total ................................. 5,808,650
Printing and Publishing - 1.20%
Quebecor Printing Capital Corporation,
6.5%, 8-1-27 .......................... 6,500 6,052,150
Railroad Transportation - 0.98%
CSX Corporation,
6.95%, 5-1-27 ......................... 5,000 4,960,750
Security and Commodity Brokers - 1.07%
Salomon Inc.,
3.65%, 2-14-02 ........................ 5,000 5,373,450
Stone, Clay and Glass Products - 1.70%
Cemex, S.A. de C.V.,
9.5%, 9-20-01 ......................... 3,500 3,556,875
Owens-Illinois, Inc.,
7.15%, 5-15-05......................... 3,250 2,970,923
USG Corporation,
9.25%, 9-15-01 ........................ 2,000 2,023,840
Total ................................. 8,551,638
Transportation Equipment - 0.08%
Federal-Mogul Corporation,
7.75%, 7-1-06 ......................... 1,000 390,000
Transportation Services - 0.22%
TOLLROAD INVESTMENT PARTNERSHIP
SERIES II,
0.0%, 2-15-09 (A) ..................... 2,000 1,102,500
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
United States Postal Service - 0.31%
Postal Square Limited Partnership,
6.5%, 6-15-22 ......................... $ 1,667 $1,578,865
TOTAL CORPORATE DEBT SECURITIES - 52.54% $264,874,037
(Cost: $272,328,444)
OTHER GOVERNMENT SECURITIES
Canada - 5.80%
Hydro-Quebec:
8.05%, 7-7-24 ......................... 9,000 9,577,890
8.4%, 3-28-25 ......................... 5,150 5,596,505
Province de Quebec:
5.67%, 2-27-26 ........................ 9,200 9,144,708
6.29%, 3-6-26 ......................... 5,000 4,951,450
Total ................................. 29,270,553
Korea - 0.50%
Korea Development Bank (The),
7.9%, 2-1-02 .......................... 2,500 2,510,150
Supranational - 1.10%
Inter-American Development Bank,
8.4%, 9-1-09 .......................... 5,000 5,531,850
TOTAL OTHER GOVERNMENT SECURITIES - 7.40% $37,312,553
(Cost: $36,500,082)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-07 ......................... 3,662 3,668,702
6.5%, 9-25-18 ......................... 2,000 1,945,000
7.0%, 1-15-19 ......................... 2,000 1,992,500
7.5%, 4-15-19 ......................... 9,285 9,293,239
6.25%, 1-15-21 ........................ 12,000 11,737,440
6.5%, 8-15-28 ......................... 1,950 1,856,371
7.5%, 3-15-29 ......................... 4,000 3,986,240
7.5%, 9-15-29 ......................... 1,616 1,581,081
9.0%, 7-1-30 .......................... 6,799 7,049,889
Federal National Mortgage Association:
8.25%, 11-1-04 ........................ 1,802 1,811,179
7.0%, 7-25-06 ......................... 5,308 5,286,156
6.09%, 4-1-09 ......................... 4,425 4,186,389
0.0%, 2-12-18 ......................... 4,500 1,374,390
7.0%, 9-25-20 ......................... 2,000 1,989,360
6.5%, 8-25-21 ......................... 2,500 2,431,250
7.0%, 8-25-21 ......................... 10,000 9,925,000
7.0%, 6-1-24 .......................... 5,550 5,435,932
6.0%, 12-1-28 ......................... 6,257 5,842,167
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Government National Mortgage Association:
7.5%, 7-15-23 ......................... $ 2,498 $ 2,511,328
7.5%, 12-15-23 ........................ 2,814 2,828,824
8.0%, 9-15-25 ......................... 3,834 3,920,525
7.0%, 7-20-27 ......................... 230 225,899
7.0%, 9-20-27 ......................... 3,692 3,618,971
7.5%, 7-15-29 ......................... 4,293 4,305,345
7.75%, 10-15-31 ....................... 1,952 1,977,067
Tennessee Valley Authority,
5.88%, 4-1-36 ......................... 5,500 5,313,990
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust:
1998-1 Class 2-B,
7.0%, 6-15-19 ......................... 750 746,947
1999-2 Class 1-B,
6.5%, 7-15-19 ......................... 5,500 5,345,285
1999-2 Class 3-B,
6.5%, 2-15-20 ......................... 4,000 3,895,000
2000-1 Class 2-C,
7.25%, 11-15-21 ....................... 2,250 2,226,780
2000-2 Class 2-D,
7.5%, 9-15-26 ......................... 4,500 4,557,645
United States Treasury:
7.5%, 2-15-05 ......................... 10,000 10,601,600
6.5%, 8-15-05 ......................... 14,750 15,121,110
7.0%, 7-15-06 ......................... 7,000 7,358,750
11.25%, 2-15-15 ....................... 10,250 15,237,240
6.125%, 11-15-27 ...................... 5,000 5,046,100
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 34.96% $176,230,691
(Cost: $177,012,854)
TOTAL SHORT-TERM SECURITIES - 1.75% $ 8,813,000
(Cost: $8,813,000)
TOTAL INVESTMENT SECURITIES - 96.65% $487,230,281
(Cost: $494,654,380)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.35% 16,879,034
NET ASSETS - 100.00% $504,109,315
See Notes to Schedule of Investments on page 14.
<PAGE>
THE INVESTMENTS OF WADDELL & REED ADVISORS BOND FUND
SEPTEMBER 30, 2000
Notes to Schedule of Investments
(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 September 30, 2000,
the value of these securities amounted to $17,417,942 or 3.46% of net
assets.
(B) Principal amounts are denominated in the indicated foreign currency,
where applicable (EUR -- Euro).
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED ADVISORS BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities -- at value
(Notes 1 and 3) ............................... $487,230
Cash .......................................... 1
Receivables:
Fund shares sold .............................. 14,678
Dividends and interest ........................ 6,679
Prepaid insurance premium ...................... 16
--------
Total assets ................................ 508,604
--------
Liabilities
Payable for investment securities purchased .... 2,997
Payable to Fund shareholders ................... 1,233
Accrued transfer agency and dividend
disbursing (Note 2) ........................... 92
Accrued service fee (Note 2) ................... 90
Accrued distribution fee (Note 2) .............. 14
Accrued management fee (Note 2) ................ 14
Accrued accounting services fee (Note 2) ....... 6
Other .......................................... 49
--------
Total liabilities ........................... 4,495
--------
Total net assets ........................... $504,109
========
Net Assets
$1.00 par value capital stock
Capital stock ................................. $ 83,850
Additional paid-in capital .................... 448,437
Accumulated undistributed income (loss):
Accumulated undistributed net investment income 433
Accumulated undistributed net realized
loss on investment transactions ............. (21,175)
Net unrealized depreciation in value of
investments ................................. (7,436)
--------
Net assets applicable to outstanding
units of capital ........................... $504,109
========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................ $6.01
Class B ........................................ $6.01
Class C ........................................ $6.01
Class Y ........................................ $6.01
Capital shares outstanding
Class A ........................................ 81,961
Class B ........................................ 1,130
Class C ........................................ 230
Class Y ........................................ 529
Capital shares authorized ........................ 240,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS BOND FUND
STATEMENT OF OPERATIONS
(In Thousands)
For the For the
fiscal fiscal year
period ended ended
September 30, December 31,
2000 1999
------------- -----------
Investment Income
Interest and amortization (Note 1B) .. 25,888 35,757
------- -------
Expenses (Note 2):
Investment management fee .......... 1,940 2,525
Service fee:
Class A ........................... 843 1,246
Class B ........................... 8 1
Class C ........................... 1 ---*
Transfer agency and dividend disbursing:
Class A ........................... 750 1,008
Class B ........................... 10 1
Class C ........................... 2 ---*
Distribution fee:
Class A ........................... 60 76
Class B ........................... 24 2
Class C ........................... 4 ---
Accounting services fee ............ 46 61
Audit fees ......................... 15 16
Custodian fees ..................... 12 17
Legal fees ......................... 3 5
Shareholder servicing - Class Y .... 3 4
Other .............................. 82 131
------- -------
Total expenses ................... 3,803 5,093
------- -------
Net investment income ........... 22,085 30,664
------- -------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net loss on securities ..... (2,091) (593)
Realized net loss on foreign
currency transactions .............. (17) ---
------- -------
Realized net loss on investments ... (2,108) (593)
Unrealized appreciation (depreciation)
in value of securities
during the period .................. 5,399 (36,307)
------- -------
Net gain (loss) on investments ... 3,291 (36,900)
------- -------
Net increase (decrease) in
net assets resulting
from operations ............... $25,376 $ (6,236)
======= =======
*Not shown due to rounding.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the For the fiscal
fiscal year ended
period ended December 31,
September 30, -----------------
2000 1999 1998
--------- ------ ------
Increase (decrease) in Net Assets
Operations:
Net investment income ........ $22,085 $ 30,664 $ 31,745
Realized net gain (loss)
on investments ............ (2,108) (593) 4,756
Unrealized appreciation
(depreciation) ............ 5,399 (36,307) 1,500
-------- -------- --------
Net increase (decrease) in net
assets resulting
from operations ......... 25,376 (6,236) 38,001
-------- -------- --------
Distributions to shareholders
from net investment income (Note 1D):*
Class A ...................... (21,557) (30,472) (31,553)
Class B ...................... (158) (9) ---
Class C ...................... (28) (1) ---
Class Y ...................... (129) (148) (359)
-------- -------- --------
(21,872) (30,630) (31,912)
-------- -------- --------
Capital share transactions (Note 5) (4,889) (14,788) 22,363
-------- -------- --------
Total increase (decrease) ... (1,385) (51,654) 28,452
Net Assets
Beginning of period ............ 505,494 557,148 528,696
-------- -------- --------
End of period .................. $504,109 $505,494 $557,148
======== ======== ========
Undistributed net investment
income .................... $433 $237 $203
==== ==== ====
*See "Financial Highlights" on pages 18 - 21.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
WADDELL & REED ADVISORS BOND FUND
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
fiscal period For the fiscal year ended December 31,
ended --------------------------------------
9/30/00 1999 1998 1997 1996 1995
---------- ----- ----- ----- ----- -----
Net asset value,
beginning of period $5.97 $6.39 $6.32 $6.14 $6.34 $5.62
---- ---- ---- ---- ---- ----
Income (loss) from investment
operations:
Net investment income0.27 0.35 0.38 0.39 0.39 0.40
Net realized and
unrealized gain
(loss) on
investments ..... 0.04 (0.42) 0.07 0.19 (0.20) 0.72
---- ---- ---- ---- ---- ----
Total from investment
operations ....... 0.31 (0.07) 0.45 0.58 0.19 1.12
---- ---- ---- ---- ---- ----
Less distributions from
net investment income(0.27) (0.35) (0.38) (0.40) (0.39) (0.40)
---- ---- ---- ---- ---- ----
Net asset value,
end of period .... $6.01 $5.97 $6.39 $6.32 $6.14 $6.34
===== ===== ===== ===== ===== =====
Total return* ...... 5.24% -1.08% 7.27% 9.77% 3.20% 20.50%
Net assets, end of
period (in
millions) ........ $493 $501 $551 $524 $519 $563
Ratio of expenses to
average net assets 1.02%**0.95% 0.84% 0.77% 0.77% 0.74%
Ratio of net investment
income to average
net assets ....... 6.00%** 5.72% 5.88% 6.34% 6.34% 6.54%
Portfolio turnover
rate ............. 23.21% 34.12% 33.87% 35.08% 55.74% 66.38%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
WADDELL & REED ADVISORS BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 9/9/99*
ended through
9/30/00 12/31/99
--------- -------
Net asset value,
beginning of period $5.97 $6.05
---- ----
Income from investment
operations:
Net investment income0.23 0.10
Net realized and
unrealized gain (loss)
on investments .. 0.04 (0.08)
---- ----
Total from investment
operations ....... 0.27 0.02
---- ----
Less distributions from
net investment income(0.23) (0.10)
---- ----
Net asset value,
end of period .... $6.01 $5.97
==== ====
Total return ....... 4.56% 0.30%
Net assets, end of
period (in
millions) ........ $7 $2
Ratio of expenses to
average net assets 1.90%** 1.91%**
Ratio of net investment
income to average
net assets ....... 5.12%** 4.93%**
Portfolio turnover
rate ............. 23.21% 34.12%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
WADDELL & REED ADVISORS BOND FUND
Class C Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
fiscal from
period 9/9/99*
ended through
9/30/00 12/31/99
--------- -------
Net asset value,
beginning of period $5.96 $6.05
---- ----
Income from investment
operations:
Net investment
income 0.22 0.10
Net realized and
unrealized gain (loss)
on investments .. 0.05 (0.09)
---- ----
Total from investment
operations ....... 0.27 0.01
---- ----
Less distributions from
net investment income(0.22) (0.10)
---- ----
Net asset value,
end of period .... $6.01 $5.96
==== ====
Total return ....... 4.64% 0.13%
Net assets, end of
period (in
thousands) ....... $1,382 $289
Ratio of expenses to
average net assets 1.95%** 1.98%**
Ratio of net investment
income to average
net assets ....... 5.07%** 4.87%**
Portfolio turnover
rate ............. 23.21% 34.12%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
WADDELL & REED ADVISORS BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
fiscal For the fiscal year For the
period ended December 31,period from
ended-------------------------------- 6/19/95* to
9/30/00 1999 1998 1997 1996 12/31/95
------- ----- ----- ----- ---- ---------
Net asset value,
beginning of period $5.97 $6.39 $6.32 $6.14 $6.34 $6.11
---- ---- ---- ---- ---- ----
Income (loss) from investment
operations:
Net investment income0.28 0.40 0.39 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments .. 0.04 (0.45) 0.07 0.17 (0.20) 0.22
---- ---- ---- ---- ---- ----
Total from investment
operations ....... 0.32 (0.05) 0.46 0.59 0.20 0.43
---- ---- ---- ---- ---- ----
Less distributions from
net investment income(0.28) (0.37) (0.39) (0.41) (0.40) (0.20)
---- ---- ---- ---- ---- ----
Net asset value,
end of period .... $6.01 $5.97 $6.39 $6.32 $6.14 $6.34
==== ==== ==== ==== ==== ====
Total return ....... 5.47% -0.81% 7.54% 9.91% 3.35% 7.20%
Net assets, end of
period (in
millions) ........ $3 $2 $6 $5 $12 $3
Ratio of expenses to
average net assets 0.72%**0.69% 0.61% 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....... 6.30%** 6.00% 6.10% 6.48% 6.52% 6.41%**
Portfolio turnover
rate ............. 23.21% 34.12% 33.87% 35.08% 55.74% 66.38%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS BOND FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors Funds, Inc. (the "Corporation") is registered
under the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Corporation issues four series of
capital shares; each series represents ownership of a separate mutual fund.
Waddell & Reed Advisors Bond Fund (the "Fund) is one of those mutual funds
and is the only fund included in these financial statements. Its
investment objective is to provide a reasonable return with emphasis on
preservation of capital, by investing primarily in domestic debt securities
usually of investment grade bonds. Effective for the fiscal period ended
September 30, 2000, the Fund changed its fiscal year end for both financial
reporting and Federal income tax purposes to September 30 from December 31.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with accounting principles generally accepted in
the United States of America.
A. Security valuation -- Each 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. Restricted securities and
securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Corporation'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 and post-1984 market discount on
the purchase of bonds are amortized for both financial and tax
reporting purposes over the remaining lives of the bonds. Dividend
income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. See Note 3 -- Investment Security
Transactions.
C. Federal income taxes -- It is the Corporation'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 Corporation 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.
D. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by the Fund on the business day following
record date. Net investment income dividends and capital gains
distributions are determined in accordance with income tax regulations
which may differ from accounting principles generally accepted in the
United States of America. These differences are due to differing
treatments for items such as deferral of wash sales and post-October
losses, foreign currency transactions, net operating losses and
expiring capital loss carryovers.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee is payable by the Fund at the annual rates of 0.525% of net assets up
to $500 million, 0.50% of net assets over $500 million and up to $1
billion, 0.45% of net assets over $1 billion and up to $1.5 billion, and
0.40% of net assets over $1.5 billion. The Fund accrues and pays the fee
daily.
Pursuant to assignment of the Investment Management Agreement between
the Corporation and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as
the Corporation's investment manager.
The Corporation has an Accounting Services Agreement with Waddell &
Reed Services Company ("WARSCO"), a wholly owned subsidiary of W&R. Under
the agreement, WARSCO acts as the agent in providing accounting services
and assistance to the Fund and pricing daily the value of shares of the
Fund. For these services, the Fund pays WARSCO a monthly fee of one-
twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as shown
in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A, Class B and Class C shares, the Fund pays WARSCO a
monthly per account charge for transfer agency and dividend disbursement
services of $1.6125 for each shareholder account which was in existence at
any time during the prior month. With respect to Class Y shares, the Fund
pays WARSCO a monthly fee at an annual rate of 0.15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses
W&R and WARSCO for certain out-of-pocket costs.
Prior to September 1, 2000, for Class A, Class B and Class C shares,
the Fund paid WARSCO a monthly per account charge for transfer agency and
dividend disbursement services of $1.3125 for each shareholder account
which was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution of cash or shares had a
record date in that month.
As principal underwriter for the Fund's shares, W&R received gross
sales commissions for Class A shares (which are not an expense of the Fund)
of $766,529. During the period ended September 30, 2000, W&R received
$4,677 and $388 in deferred sales charges for Class B shares and Class C
shares, respectively. With respect to Class A, Class B and Class C shares,
W&R paid sales commissions of $561,525 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 Corporation pursuant to Rule 12b-1 under the Investment Company Act of
1940, the Fund may pay monthly a distribution and/or service fee to W&R in
an amount not to exceed 0.25% of the Fund's Class A average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends in
connection with the distribution of the Class A shares and/or provision of
personal services to Fund shareholders and/or maintenance of shareholder
accounts.
Under the Distribution and Service Plan adopted by the Corporation for
Class B and Class C shares, respectively, the Fund may pay W&R, on an
annual basis, a service fee of up to 0.25% of the average daily net assets
of the class to compensate W&R for providing services to shareholders of
that class and/or maintaining shareholder accounts for that class and a
distribution fee of up to 0.75% of the average daily net assets of the
class to compensate W&R for distributing the shares of that class. The
Class B Plan and the Class C Plan each permit W&R to receive compensation,
through the distribution and service fee, respectively, for its
distribution activities for that class, which are similar to the
distribution activities described with respect to the Class A Plan, and for
its activities in providing personal services to shareholders of that class
and/or maintaining shareholder accounts of that class, which are similar to
the corresponding activities for which it is entitled to reimbursement
under the Class A Plan.
The Fund paid Directors' fees of $11,585, which are included in other
expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services,
Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government
obligations and short-term securities, aggregated $42,748,959, while
proceeds from maturities and sales aggregated $40,945,101. Purchases of
short-term securities and U.S. Government obligations aggregated
$1,022,960,608 and $67,271,121, respectively. Proceeds from maturities and
sales of short-term securities and U.S. Government obligations aggregated
$1,032,086,677 and $77,088,669, respectively.
For Federal income tax purposes, cost of investments owned at
September 30, 2000 was $494,702,318, resulting in net unrealized
depreciation of $7,472,037, of which $4,500,274 related to appreciated
securities and $11,972,311 related to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital losses of
$2,794,914 during the fiscal period ended September 30, 2000, which
included the effect of certain losses recognized from the prior year (see
discussion below). Capital loss carryovers aggregated $21,109,845 at
September 30, 2000, and are available to offset future realized capital
gain net income for Federal income tax purposes but will expire if not
utilized as follows: $18,234,028 at September 30, 2002; $80,903 at
September 30, 2003; and $2,794,914 at September 30, 2008.
Internal Revenue Code regulations permit the Fund to defer into its
next fiscal year net capital losses or net long-term capital losses
incurred between each November 1 and the end of its fiscal year ("post-
October losses"). During the fiscal period ended September 30, 2000, the
Fund recognized post-October losses of $655,692 that had been deferred from
the year ended December 31, 1999.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class
B, Class C and Class Y, each of which have equal rights as to assets and
voting privileges. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan
and are subject to a separate transfer agency and dividend disbursement
services fee structure. A comprehensive discussion of the terms under
which shares of each class are offered is contained in the Prospectus and
the Statement of Additional Information for the Corporation.
Income, non-class specific expenses, and realized and unrealized gains
and losses are allocated daily to each class of shares based on the value
of their relative net assets as of the beginning of each day adjusted for
the prior day's capital share activity.
Transactions in capital stock are summarized below. Amounts are in
thousands.
For the
fiscal period For the fiscal
ended year ended December 31,
September 30, --------------------------
2000 1999 1998
------------ ------------ ------------
Shares issued from sale
of shares:
Class A ............ 90,616 74,231 31,835
Class B ............. 900 333 ---
Class C ............. 209 62 ---
Class Y ............ 166 357 217
Shares issued from
reinvestment of dividends:
Class A ............ 3,236 4,402 4,342
Class B ............. 26 1 ---
Class C ............. 5 ---* ---
Class Y ............ 19 23 57
Shares redeemed:
Class A ............ (95,812) (80,926) (32,844)
Class B ............. (86) (45) ---
Class C ............. (32) (14) ---
Class Y ............ (107) (917) (96)
------ ------ ------
Increase (decrease) in outstanding
capital shares ...... (860) (2,493) 3,511
====== ====== ======
Value issued from sale
of shares:
Class A ............ $540,696 $455,677 $202,677
Class B ............. 5,367 2,000 ---
Class C ............. 1,247 372 ---
Class Y ............ 993 2,207 1,379
Value issued from
reinvestment of dividends:
Class A ............ 19,277 27,368 27,530
Class B ............. 157 9 ---
Class C ............. 28 1 ---
Class Y ............ 113 141 359
Value redeemed:
Class A ............ (571,422) (496,408) (208,970)
Class B ............. (515) (266) ---
Class C ............. (193) (81) ---
Class Y ............ (637) (5,808) (612)
-------- -------- --------
Increase (decrease) in outstanding
capital ............ $(4,889) $(14,788) $22,363
======== ======== =======
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Waddell & Reed Advisors Bond Fund
(the "Fund"), (one of the mutual funds comprising Waddell & Reed Advisors
Funds, Inc., as of September 30, 2000, and the related statements of
operations for the fiscal period then ended and the fiscal year ended
December 31, 1999, the statements of changes in net assets for the fiscal
period ended September 30, 2000, and each of the two fiscal years in the
period ended December 31, 1999, and the financial highlights for the fiscal
period ended September 30, 2000, and for each of the five fiscal years in
the period ended December 31, 1999. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of September 30,
2000, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Waddell & Reed Advisors Bond Fund as of September 30, 2000, the results
of its operations for the fiscal period then ended and the fiscal year
ended December 31, 1999, the changes in its net assets for the fiscal
period ended September 30, 2000 and each of the two fiscal years in the
period ended December 31, 1999, and the financial highlights for the fiscal
period ended September 30, 2000, and for each of the five fiscal years in
the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<PAGE>
INCOME TAX INFORMATION
September 30, 2000
The amounts of the dividends 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 the
dividends were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
---------------------------------------------------------
For Individuals For Corporations
-------------------------------------------------------
Record OrdinaryLong-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
----------- ------------- -------- ----------------------------
Class A
01-12-00 $0.0290 $0.0290 $--- $--- $0.0290 $---
02-09-00 .0290 .0290 --- --- .0290 ---
03-15-00 .0290 .0290 --- --- .0290 ---
04-12-00 .0290 .0290 --- --- .0290 ---
05-10-00 .0290 .0290 --- --- .0290 ---
06-14-00 .0300 .0300 --- --- .0300 ---
07-12-00 .0300 .0300 --- --- .0300 ---
08-09-00 .0300 .0300 --- --- .0300 ---
09-13-00 .0300 .0300 --- --- .0300 ---
------ ------- ---- ------- ------- ----
Total $0.2650 $0.2650 $--- $--- $0.2650 $---
====== ======= ==== ======= ======= ====
Class B
01-12-00 $0.0260 $0.0260 $--- $--- $0.0260 $---
02-09-00 .0240 .0240 --- --- .0240 ---
03-15-00 .0240 .0240 --- --- .0240 ---
04-12-00 .0250 .0250 --- --- .0250 ---
05-10-00 .0250 .0250 --- --- .0250 ---
06-14-00 .0250 .0250 --- --- .0250 ---
07-12-00 .0260 .0260 --- --- .0260 ---
08-09-00 .0260 .0260 --- --- .0260 ---
09-13-00 .0250 .0250 --- --- .0250 ---
------ ------- ---- ------- ------- ----
Total $0.2260 $0.2260 $--- $--- $0.2260 $---
====== ======= ==== ======= ======= ====
Class C
01-12-00 $0.0240 $0.0240 $--- $--- $0.0240 $---
02-09-00 .0240 .0240 --- --- .0240 ---
03-15-00 .0240 .0240 --- --- .0240 ---
04-12-00 .0240 .0240 --- --- .0240 ---
05-10-00 .0250 .0250 --- --- .0250 ---
06-14-00 .0240 .0240 --- --- .0240 ---
07-12-00 .0260 .0260 --- --- .0260 ---
08-09-00 .0260 .0260 --- --- .0260 ---
09-13-00 .0240 .0240 --- --- .0240 ---
------ ------- ---- ------- ------- ----
Total $0.2210 $0.2210 $--- $--- $0.2210 $---
====== ======= ==== ======= ======= ====
Class Y
01-12-00 $0.0300 $0.0300 $--- $--- $0.0300 $---
02-09-00 .0300 .0300 --- --- .0300 ---
03-15-00 .0310 .0310 --- --- .0310 ---
04-12-00 .0300 .0300 --- --- .0300 ---
05-10-00 .0300 .0300 --- --- .0300 ---
06-14-00 .0320 .0320 --- --- .0320 ---
07-12-00 .0320 .0320 --- --- .0320 ---
08-09-00 .0310 .0310 --- --- .0310 ---
09-13-00 .0320 .0320 --- --- .0320 ---
------ ------- ---- ------- ------- ----
Total $0.2780 $0.2780 $--- $--- $0.2780 $---
====== ======= ==== ======= ======= ====
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in
the year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV
after the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the
tax treatment of dividends and distributions from the Fund.
<PAGE>
CORPORATION DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, San Mateo, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
SELECTED CORPORATION OFFICERS
James C. Cusser, Vice President
Robert L. Hechler, President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by
submitting forms provided by Waddell & Reed, Inc. which can be obtained
from your Waddell & Reed representative or by submitting Internal Revenue
Service Form W-4P. Once made, an election can be revoked by providing
written notice to Waddell & Reed, Inc. If you elect not to have tax
withheld you may be required to make payments of estimated tax. Penalties
may be imposed by the IRS if withholding and estimated tax payments are not
adequate.
<PAGE>
The Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors Vanguard Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1020A(9-00)
For more complete information regarding any of the mutual funds in Waddell
& Reed Advisors Funds, including charges and expenses, please obtain the
Fund's prospectus by calling or writing to the number or address listed
above. Please read the prospectus carefully before investing.
