<PAGE>
File No. 33-45961
File No. 811-6569
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 6
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 6
WADDELL & REED FUNDS, INC.
- ---------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
- ---------------------------------------------------------------------------
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ending March 31, 1995 was filed on May 22, 1995.
<PAGE>
WADDELL & REED FUNDS, INC.
==========================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d) ..................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
(b) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
(c) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
5(a) ..................... About the Management and Expenses of the Funds
(b)...................... Inside Back Cover; About the Management and
Expenses of the Funds
(c) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(f) ..................... About the Management and Expenses of the Funds
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Funds
5A........................ **
6(a) ..................... About the Management and Expenses of the Funds
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... About the Management and Expenses of the Funds
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Funds
7(a) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Funds
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. *
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
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*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated December 2, 1995. The SAI is available free upon request to the
Corporation or Waddell & Reed, Inc., its principal underwriter and distributor,
at the address or telephone number below. The SAI is incorporated by reference
into this Prospectus and you will not be aware of all facts unless you read both
this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Waddell & Reed Funds, Inc.
Class B Shares
Waddell & Reed Funds, Inc. (the "Corporation") is a management investment
company that has six separate funds (the "Funds"), each of which is designed for
investors with different goals. Total Return Fund seeks to provide current
income while seeking capital growth. Growth Fund seeks capital appreciation.
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital. Municipal Bond Fund seeks to provide
income which is not subject to Federal income taxation. International Growth
Fund seeks long-term appreciation as its primary goal and realization of income
as its secondary goal. Asset Strategy Fund seeks high total return with reduced
risk over the long term.
This Prospectus describes one class of shares of each of the Funds--Class B
shares.
Prospectus
December 2, 1995
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS........................5
EXPENSES........................................9
FINANCIAL HIGHLIGHTS...........................21
PERFORMANCE....................................27
Explanation of Terms .........................27
ABOUT WADDELL & REED...........................29
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...30
Investment Goals and Principles ..............31
Risk Considerations ........................41
Securities and Investment Practices ........42
ABOUT YOUR ACCOUNT.............................80
Ways to Set Up Your Account ..................80
Buying Shares ................................83
Minimum Investments ..........................84
Adding to Your Account .......................85
Selling Shares ...............................85
Shareholder Services .........................93
Personal Service ...........................93
Reports ....................................93
Exchanges ..................................93
Automatic Transactions .....................94
Dividends, Distributions and Taxes ...........96
Distributions ..............................96
Taxes ......................................97
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS101
WRIMCO and Its Affiliates ...................103
Breakdown of Expenses .......................106
Management Fee ............................107
Other Expenses ............................108
Distribution ..............................109
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes six separate series (each a "Fund" and
collectively the "Funds") of an open-end, management investment company. Each
Fund has different investment goals and policies. Each of the Funds is a
diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital growth.
This Fund invests primarily in common stocks, or securities convertible into
common stocks, of companies that have a record of paying regular dividends on
common stock and also have the potential for capital appreciation. Although
common stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return with reduced risk over the long
term. This Fund seeks to reduce risk over the long term by spreading its assets
among stocks, bonds, and short-term instruments, both in the United States and
abroad, attempting to moderate the risk potential of investing solely in one
class of instruments. The Fund designates a mix which represents the way the
Fund's investments will generally be allocated over the long term. This mix
will vary over short-term periods as the Fund's investment manager adjusts the
Fund's holdings -- within defined ranges -- based on the current outlook for the
different markets. Because the Fund owns different types of investments, its
performance will be affected by a variety of factors.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the six
Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class B shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class B share of
a Fund is the net asset value of a Class B share of that Fund. A sales charge
is not incurred upon purchase of shares of a Fund, but the Class B shares are
subject to a contingent deferred sales charge if redeemed within a certain time
period. See "About Your Account" for information on how to purchase Class B
shares of each of the Funds.
Redemptions: You may redeem your Class B shares at net asset value less a
deferred sales charge, if any. The deferred sales charge will vary with the
length of time you have held your shares. When you sell your Class B shares,
they may be worth more or less than what you paid for them. See "About Your
Account" for a description of redemption and reinvestment procedures.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions, and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Funds" for information
about the risks associated with each Fund's investments.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge1 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees2 0.98%
Other expenses 0.36%
Total Fund operating expenses3 2.05%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return4 and (2) redemption at the end of each time period:
1 year $ 51
3 years $ 74
5 years $110
10 years $238
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return4 and (2) no redemption at the end of each time period:
1 year $ 21
3 years $ 64
5 years $110
10 years $238
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
1The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
2It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
3Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
4Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of a Fund's future performance, which may be greater or lesser.
<PAGE>
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge5 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees6 0.81%
12b-1 fees7 0.98%
Other expenses 0.45%
Total Fund operating expenses8 2.24%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return9 and (2) redemption at the end of each time period:
1 year $ 53
3 years $ 80
5 years $120
10 years $257
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return9 and (2) no redemption at the end of each time period:
1 year $ 23
3 years $ 70
5 years $120
10 years $257
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
5The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
6The management fee for Growth Fund is higher than that of most funds.
7It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
8Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
9Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of a Fund's future performance, which may be greater or lesser.
<PAGE>
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Limited Term-Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge10 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees11 0.96%
Other expenses 0.64%
Total Fund operating expenses12 2.16%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return13 and (2) redemption at the end of each time period:
1 year $ 52
3 years $ 78
5 years $116
10 years $249
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return13 and (2) no redemption at the end of each time period:
1 year $ 22
3 years $ 68
5 years $116
10 years $249
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
10The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
11It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
12Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
13Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge14 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees15 0.97%
Other expenses 0.41%
Total Fund operating expenses 1.94%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return16 and (2) redemption at the end of each time period:
1 year $ 50
3 years $ 71
5 years $105
10 years $226
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return16 and (2) no redemption at the end of each time period:
1 year $ 20
3 years $ 61
5 years $105
10 years $226
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
14The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
15It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
16Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund17
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge18 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees19 0.81%
12b-1 fees20 0.87%
Other expenses 0.77%
Total Fund operating expenses21 2.45%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return22 and (2) redemption at the end of each time period:
1 year $ 55
3 years $ 86
5 years $131
10 years $279
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return22 and (2) no redemption at the end of each time period:
17International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
18The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
19Expense information has been restated to reflect the current management fees
which became effective April 20, 1995. The management fee for International
Growth Fund is higher than that of most funds.
20It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
21Expense information has been restated to reflect the current management fees
which became effective April 20, 1995. Retirement plan accounts may be subject
to a $2 fee imposed by the plan custodian for use of the Flexible Withdrawal
Service.
22Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
1 year $ 25
3 years $ 76
5 years $131
10 years $279
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge23 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees240.81%
12b-1 fees25 1.00%
Other expenses260.40%
Total Fund operating expenses27 2.21%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return28 and (2) redemption at the end of each time period:
1 year $52
3 years $79
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return28 and (2) no redemption at the end of each time period:
1 year $22
3 years $69
Asset Strategy Fund commenced operations on April 20, 1995. The expenses are
pro forma and estimated for the first fiscal year of operations. The purpose of
the table is to assist you in understanding the various costs and expenses that
an investor in the Fund will bear directly or indirectly. The example should
not be considered a representation of past or future expenses; actual expenses
23The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
24The management fee for Asset Strategy Fund is higher than that of most funds.
25Expense information reflects the maximum 12b-1 fee. It is possible that long-
term shareholders of the Fund may bear 12b-1 distribution fees which are more
than the maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. See "Breakdown of Expenses."
26Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
27Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
28Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
may be greater or lesser than those shown. For a more complete discussion of
certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Financial Highlights
Total Return Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Share of Class B Capital Stock Outstanding Throughout Each Period*:
For the For the For the
year ended year endedperiod ended
March 31, March 31, March 31,
1995 1994 1993**
---------- ----------------------
Net asset value,
beginning of
period ........... $11.99 $11.07 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss).... .00 (0.01) .02
Net realized and
unrealized gain
on investments .. .74 .93 1.07
------ ------ ------
Total from investment
operations ....... .74 .92 1.09
------ ------ ------
Less dividends from net
investment income (0.00) (0.00) (0.02)
------ ------ ------
Net asset value,
end of period .... $12.73 $11.99 $11.07
====== ====== ======
Total return ....... 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $104,691 $61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.05% 2.16% 2.21%***
Ratio of net investment
income to average
net assets ....... -0.04% -0.12% 0.32%***
Portfolio turnover
rate ............. 16.60% 17.31% 23.97%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Growth Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Share of Class B Capital Stock Outstanding Throughout Each Period*:
For the For the For the
year ended year endedperiod ended
March 31, March 31, March 31,
1995 1994 1993**
---------- ----------------------
Net asset value,
beginning of
period ........... $14.08 $11.68 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... .00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 3.15 2.75 1.79
------ ------ ------
Total from investment
operations ....... 3.15 2.71 1.77
------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.33) (0.31) (0.08)
------ ------ ------
Total distributions (0.33) (0.31) (0.09)
------ ------ ------
Net asset value,
end of period .... $16.90 $14.08 $11.68
====== ====== ======
Total return ....... 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $100,683 $43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.23% 2.34% 2.50%***
Ratio of net investment
income to average
net assets ....... 0.01% -0.97% -0.68%***
Portfolio turnover
rate ............. 56.30% 69.12% 124.44%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Limited-Term Bond Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Share of Class B Capital Stock Outstanding Throughout Each Period*:
For the For the For the
year ended year endedperiod ended
March 31, March 31, March 31,
1995 1994 1993**
---------- ----------------------
Net asset value,
beginning of
period ........... $9.84 $10.06 $10.00
----- ------ ------
Income from investment
operations:
Net investment
income .......... .39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) (0.20) .06
----- ------ ------
Total from investment
operations ....... .26 .15 .24
----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.01) (0.02) (0.00)
----- ------ ------
Total distributions (0.40) (0.37) (0.18)
----- ------ ------
Net asset value,
end of period .... $9.70 $ 9.84 $10.06
===== ====== ======
Total return ....... 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.17% 2.14% 2.15%***
Ratio of net investment
income to average
net assets ....... 4.05% 3.41% 3.48%***
Portfolio turnover
rate ............. 29.20% 25.90% 39.64%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Municipal Bond Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Share of Class B Capital Stock Outstanding Throughout Each Period*:
For the For the For the
year ended year endedperiod ended
March 31, March 31, March 31,
1995 1994 1993**
---------- ----------------------
Net asset value,
beginning of
period ........... $10.12 $10.53 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... .18 (0.28) .53
------ ------ ------
Total from investment
operations ....... .62 .11 .74
------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.13) (0.00)
------ ------ ------
Total distributions (0.44) (0.52) (0.21)
------ ------ ------
Net asset value,
end of period .... $10.30 $10.12 $10.53
====== ====== ======
Total return ....... 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.94% 1.98% 1.94%***
Ratio of net investment
income to average
net assets ....... 4.41% 3.62% 3.99%***
Portfolio turnover
rate ............. 56.92% 18.93% 140.02%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
International Growth Fund*
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Share of Class B Capital Stock Outstanding Throughout Each Period**:
For the For the For the
year ended year endedperiod ended
March 31, March 31, March 31,
1995 1994 1993***
-------------- ----------------------
Net asset value,
beginning of
period ........... $9.37 $9.68 $10.00
----- ----- ------
Income from investment
operations:
Net investment
income .......... .36 .34 .20
Net realized and
unrealized loss
on investments .. (0.01) (0.31) (0.32)
----- ----- ------
Total from investment
operations ....... .35 .03 (0.12)
----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.36) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.08) (0.00)
----- ----- ------
Total distributions. (0.36) (0.34) (0.20)
----- ----- ------
Net asset value,
end of period .... $9.36 $9.37 $ 9.68
===== ===== ======
Total return ....... 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.29% 2.24% 2.06%****
Ratio of net investment
income to average
net assets ....... 3.87% 3.56% 3.88%****
Portfolio turnover
rate ............. 13.33% 34.90% 8.35%****
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
***The Corporation's inception date is January 29, 1992; however, since the
Fund did not have any investment activity or incur expenses prior to the
date of initial public offering, the per share information is for a capital
share outstanding for the period from September 21, 1992 (initial public
offering) through March 31, 1993.
****Annualized.
Asset Strategy Fund began operations in April 1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds may
also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each Class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
Standardized total return figures reflect payment of the maximum applicable
contingent deferred sales charge. Non-standardized performance information does
not reflect deduction of the sales charge or is for periods other than those
required to be presented or differs otherwise from standardized performance
information.
Yield refers to the income generated by an investment in a Fund over a given
period of time, expressed as an annual percentage rate. A Fund's yield is based
on a 30-day period ending on a specific date and is computed by dividing the
Fund's net investment income per share earned during the period by the Fund's
maximum offering price per share on the last day of the period. Tax equivalent
yield is calculated by applying the stated income tax rate to only the net
investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the performance
of other selected mutual funds, selected recognized market indicators such as
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average, or
non-market indices or averages of mutual fund industry groups. The Funds may
quote their performance rankings and/or other information as published by
recognized independent mutual fund statistical services or by publications of
general interest. In connection with a ranking, the Funds may provide
additional information, such as the particular category to which it relates, the
number of funds in the category, the criteria upon which the ranking is based,
and the effect of sales charges, fee waivers and/or expense reimbursements.
All performance information that a Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of any Fund's
shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal of each Fund is set forth below. There is no assurance that a Fund
will achieve its goal.
Total Return Fund. The goal of Total Return Fund is to provide current income
while seeking capital growth. The Fund seeks to achieve this goal by investing
primarily in common stocks, or securities convertible into common stocks, of
companies that have a record of paying regular dividends on common stock and
also have the potential for capital appreciation.
When conditions are such that stocks with high yields are less attractive than
other common stocks, Total Return Fund may hold lower yielding or non-dividend-
paying common stocks because of their prospects for capital growth. At other
times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Total Return Fund's assets, including, without limitation, the following:
(i) hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Growth Fund. The goal of Growth Fund is capital appreciation. The Fund seeks
to achieve this goal through a diversified holding of securities consisting
primarily of common stocks, or securities convertible into common stocks, of
companies that offer, in the opinion of WRIMCO, above-average growth potential,
including relatively new or unseasoned companies. Growth Fund is not intended
for investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be subject
to rapid and wide fluctuation. In selecting companies, WRIMCO usually looks for
such characteristics as aggressive or creative management, technology or
specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Limited-Term Bond Fund. The goal of Limited-Term Bond Fund is to provide a high
level of current income consistent with preservation of capital. The Fund seeks
to achieve this goal by investing primarily in debt securities of investment
grade, including U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted average
maturity of its portfolio of not less than two years and not more than five
years. The maturity of collateralized mortgage obligations and other asset-
backed securities will be deemed to be the estimated average life of such
securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may purchase
are mortgage-backed securities of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage-backed
securities include pass-through securities, participation certificates and
collateralized mortgage obligations. The Fund will invest in U.S. Government
Securities not backed by the full faith and credit of the United States only
when WRIMCO is satisfied the credit risk is acceptable. The debt securities,
other than U.S. Government Securities, in which Limited-Term Bond Fund invests
include, without limitation, corporate bonds, medium-term notes, asset-backed
securities (such as mortgage-backed securities) and other financial obligations
that are commonly considered debt, all of which securities will be denominated
in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Limited-Term Bond Fund's assets, including, without limitation, the
following: (i) shorten the average maturity of the Fund's portfolio; (ii) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (iii) emphasize debt securities of a higher quality
than those the Fund would ordinarily hold; or (iv) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Municipal Bond Fund. The goal of Municipal Bond Fund is to provide income that
is not subject to Federal income taxation. The Fund seeks to achieve this goal
by investing primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the interest on
which is not includable in gross income for Federal income tax purposes. See
"Dividends, Distributions and Taxes" concerning the alternative minimum tax.
Municipal Bond Fund and WRIMCO rely on the opinion of bond counsel for the
issuer in determining whether obligations are municipal bonds.
The types of municipal bonds in which Municipal Bond Fund may invest include
"general obligation" bonds, "revenue" bonds and certain "industrial development"
bonds. Municipal obligations in which the Fund may invest also include
municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are (i) U.S.
Government Securities, (ii) bank obligations of domestic banks or savings and
loan associations that are subject to regulation by the U.S. Government
(including, without limitation, certificates of deposit, letters of credit and
acceptances), and (iii) commercial paper rated at least A by a recognized
statistical rating organization.
The ability of the governments, agencies, companies or others to pay principal
and interest on debt securities held by Municipal Bond Fund may change. Such
changes, actual or expected, may also affect the value of these debt securities,
and in turn the value of Municipal Bond Fund's shares. Dividends paid by
Municipal Bond Fund that are derived from income from taxable obligations,
options and futures contracts are subject to Federal income tax. See
"Dividends, Distributions and Taxes."
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Municipal Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
International Growth Fund. The primary goal of International Growth Fund is the
long-term appreciation of your investment. Realization of income is a secondary
goal. The Fund seeks to achieve these goals by investing in securities issued
by companies or governments of any nation. The securities WRIMCO selects to
attempt to achieve the Fund's primary goal will be issued by companies that
WRIMCO believes have the potential for long-term growth.
There are three main kinds of securities that International Growth Fund will
own: common stocks, preferred stocks and debt securities. During normal market
conditions, the Fund will have at least 65% of its assets invested in growth
securities. The securities that the Fund purchases because they may increase in
value over the long term will usually be common stocks or securities that may be
converted into common stocks or rights for the purchase of common stocks. All
or a substantial amount of International Growth Fund's assets may be invested in
foreign securities if, in WRIMCO's opinion, doing so might assist in achieving
the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of the securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
International Growth Fund's assets, including, without limitation, the
following: (i) invest in either debt securities (including commercial paper or
U.S. Government Securities) or preferred stocks or both; or (ii) invest
completely or substantially in U.S. securities.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Asset Strategy Fund. The goal of Asset Strategy Fund is high total return with
reduced risk over the long term. The Fund seeks to achieve this goal by
allocating its assets among stocks, bonds, and short-term instruments.
Allocating assets among different types of investments allows Asset Strategy
Fund to take advantage of opportunities wherever they may occur, but also
subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and makes
changes to favor investments that it believes provide the most favorable outlook
for achieving the Fund's goal. Although WRIMCO uses its expertise and resources
in choosing investments and in allocating assets, WRIMCO's decisions may not
always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or types,
of investments. The stock class includes equity securities of all types. The
bond class includes all varieties of fixed-income instruments with maturities of
more than three years (including adjustable-rate preferred stocks). The short-
term class includes all types of short-term instruments with remaining
maturities of three years or less. Within each of these classes, Asset Strategy
Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within specified
ranges. Asset Strategy Fund's mix indicates the benchmark for its combination
of investments in each class over time. WRIMCO may change the mix within the
specified ranges from time to time. The range and approximate percentage of the
mix for each asset class are shown below. Some types of investments, such as
indexed securities, can fall into more than one asset class.
Mix Range
- --------- ------
Stock
class 10-60%
40%
Bond
class 20-60%
40%
Short-term
class 0-70%
20%
Asset Strategy Fund's approach spreads the Fund's assets among all three
classes, attempting to moderate the risk potential of stocks, bonds, and short-
term instruments. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try
to pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time. Under normal
circumstances, a single reallocation will not involve more than 10% of Asset
Strategy Fund's total assets.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, as a temporary defensive measure at times when WRIMCO
believes that a mix of stocks, bonds and certain short-term instruments does not
offer a good investment opportunity, it may temporarily invest up to all of
Asset Strategy Fund's assets in money market instruments rated A-1 by Standard &
Poor's Ratings Services ("S&P") or Prime 1 by Moody's Investors Service, Inc.
("MIS"), or unrated securities judged by WRIMCO to be of equivalent quality.
Asset Strategy Fund diversifies across investment types more than most mutual
funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to varying
degrees of market risk, financial risk, and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of each Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of each Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including options,
futures contracts, options on futures contracts, indexed securities, swaps,
caps, collars, floors, stripped securities and mortgage-backed securities. The
use of derivative instruments involves special risks. See "Risks of Derivative
Instruments" for further information on the risks of investing in these
instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of instruments
in which the Funds may invest, and strategies WRIMCO may employ in pursuit of
the Funds' investment goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques
to the full extent permitted unless it believes that doing so will help a Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing your Fund's holdings.
Certain of the investment policies and restrictions of each Fund are also stated
below. A fundamental policy of a Fund may not be changed without the approval
of the shareholders of that Fund. Operating policies may be changed by the
Board of Directors without the approval of the affected shareholders. The goal
of each Fund is a fundamental policy. Unless otherwise indicated, the types of
securities and other assets in which a Fund may invest and other policies are
operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Funds' investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which a Fund (other
than Municipal Bond Fund) invests may include debt securities whose performance
is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed
as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
Lower-quality debt securities (commonly called "junk bonds") are considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by S&P and
C by MIS). In addition, Asset Strategy Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating. Debt securities rated at least BBB
by S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. Debt
securities rated D by S&P or C by MIS are in payment default or are regarded as
having extremely poor prospects of ever attaining any real investment standing.
S&P and MIS ratings are described in Appendix A to the SAI. While credit
ratings are only one factor WRIMCO relies on in evaluating high-yield debt
securities, certain risks are associated with credit ratings. Credit ratings
evaluate the safety of principal and interest payments, not market value risk.
Credit ratings for individual securities may change from time to time, and a
Fund may retain a portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of public
authorities to obtain funds to finance privately operated facilities. Their
credit quality is generally dependent on the credit standing of the company
involved.
Other municipal obligations include municipal lease obligations of municipal
authorities or entities and participations in these obligations (collectively,
"lease obligations"). WRIMCO determines liquidity of lease obligations in
accordance with guidelines established by the Corporation's Board of Directors.
Unrated municipal lease obligations will be considered to be illiquid. In
determining the credit quality of unrated municipal lease obligations, one of
the factors, among others, to be considered will be the likelihood that the
lease will not be canceled. Certain "non-appropriation" lease obligations may
present special risks because the municipality's obligation to make future lease
or installment payments depends on money being appropriated each year for this
purpose.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of Municipal
Bond Fund's net assets will be invested during normal market conditions in
municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal bonds of
investment grade.
Municipal Bond Fund does not intend to invest 25% or more of its assets in
industrial development bonds.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to
the SAI. Preferred stock rated AAA, AA, A or BBB by S&P or aaa, aa, a or baa by
MIS is considered to be of investment grade. Preferred stock rated BB or lower
by S&P or ba or lower by MIS is considered to have speculative characteristics.
The Funds (other than Municipal Bond Fund) may invest in preferred stock rated
in any rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, a
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Policies and Restrictions: At least 65% of the respective total assets of
Limited-Term Bond Fund and Municipal Bond Fund will be invested during normal
market conditions in bonds.
Up to 10% of Municipal Bond Fund's assets may be invested in debt securities
other than municipal bonds ("taxable obligations").
Limited-Term Bond Fund does not intend to invest more than 50% of its assets in
securities rated in the lowest tier of investment grade debt securities (those
rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and
International Growth Fund may not invest in non-investment grade debt securities
if as a result of such investment more than 5% of that Fund's assets would
consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-quality
debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently intend to
invest in money-market instruments rated below A-1 by S&P or Prime 1 by MIS, or
judged by WRIMCO to be of equivalent quality.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government- sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
Policies and Restrictions: Normally at least 80% of International Growth
Fund's assets will be invested in foreign securities. International Growth Fund
may purchase foreign securities only if they are (i) listed or admitted to
trading on a domestic or foreign securities exchange, with the exception of
warrants, rights or restricted securities, which need not be so listed or
admitted, or (ii) represented by American Depositary Receipts (receipts issued
against securities of foreign issuers deposited or to be deposited with an
American depository) so listed or admitted on a domestic securities exchange or
traded in the United States over-the-counter ("OTC") market, or (iii) issued or
guaranteed by any foreign government or any subdivision, agency or
instrumentality thereof.
Under normal market conditions, International Growth Fund will have at least 65%
of its assets invested in at least three different countries outside the United
States. International Growth Fund may not purchase a foreign security if as a
result more than 75% of its assets would be invested in securities of any one
foreign country. International Growth Fund will not invest more than 25% of its
assets in the securities issued by the government of any one foreign
country.
Under normal conditions, Asset Strategy Fund intends to limit its investments in
foreign securities to no more than 50% of total assets. Asset Strategy Fund
currently intends to limit its investments in obligations of any single foreign
government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their respective
assets in foreign securities, subject to limitations explained in the SAI.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain swaps,
options, futures contracts, forward currency contracts and indexed securities to
attempt to enhance income or yield or may attempt to reduce the overall risk of
its investments by using certain options, futures contracts, forward currency
contracts, swaps, caps, collars and floors and certain other strategies
described herein. The strategies described below may be used in an attempt to
manage a Fund's foreign currency exposure as well as other risks of a Fund's
investments that can affect fluctuation in its net asset value.
Asset Strategy Fund may also use various techniques to increase or decrease its
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into forward currency contracts or swap
agreements, and purchasing indexed securities.
Subject to the further limitations stated in the SAI, the Funds' limitations
on the above instruments are as follows: Total Return Fund and Growth Fund may
not purchase or sell options, futures contracts or options on futures contracts
if immediately thereafter the aggregate value of such contracts and options held
by the Fund would exceed 10% of its assets. Similarly, Municipal Bond Fund may
not purchase or sell options, futures contracts or options on futures contracts
if immediately thereafter the aggregate value of such contracts and options held
by the Fund would exceed 20% of its assets. Dividends paid by Municipal Bond
Fund that are derived from income from taxable obligations, options and futures
contracts are subject to Federal income tax. See "Dividends, Distributions and
Taxes." Limited-Term Bond Fund may not purchase or sell options, futures
contracts or options on futures contracts if immediately thereafter the
aggregate value of such options and contracts held by the Fund would exceed 25%
of its assets.
A Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. A Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. A Fund may engage in certain strategies involving options to attempt
to enhance the Fund's income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net asset
value being more sensitive to changes in the value of the related investment.
There is no assurance that a liquid secondary market will exist for exchange-
listed options. The market for options that are not listed on an exchange may be
less active than the market for exchange-listed options. A Fund will be able to
close a position in an option it has written only if there is a market for the
put or call. If a Fund is not able to enter into a closing transaction on an
option it has written, it will be required to maintain the securities, or cash
in the case of an option on an index, subject to the call or the collateral
underlying the put until a closing purchase transaction can be entered into or
the option expires. Because index options are settled in cash, a Fund cannot
provide in advance for its potential settlement obligations on a call it has
written on an index by holding the underlying securities. The Fund bears the
risk that the value of the securities it holds will vary from the value of the
index.
Policies and Restrictions: Total Return Fund and Growth Fund may write and
purchase listed options on domestic stock indices that are not limited to stocks
of any industry or group of industries ("broadly-based stock indices"). Total
Return Fund and Growth Fund may also write listed covered call options and
purchase listed covered put options on domestic stocks as well as purchase
listed call options and write listed put options on domestic stocks that are not
covered.
Limited-Term Bond Fund and Municipal Bond Fund may write and purchase listed
options on domestic debt securities, which securities include, without
limitation, U.S. Government Securities ("Domestic Debt Securities"). Limited-
Term Bond Fund may also write and purchase OTC options on Domestic Debt
Securities. Municipal Bond Fund may write and purchase listed options on
indices of municipal bonds ("Municipal Bond Indices").
International Growth Fund may only write covered call options on securities that
are listed on a domestic securities exchange on not more than 10% of its total
assets. With respect to International Growth Fund only, a call option is
"covered" when International Growth Fund owns the securities subject to call or
has the right to acquire them without additional payment. International Growth
Fund may only purchase call options on securities to effect closing transactions
with respect to call options it has written.
There is no limitation on the types of options that Asset Strategy Fund may
purchase and sell. See the SAI for the limitations on Asset Strategy Fund's use
of options.
Futures Contracts and Options on Futures Contracts. When a Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified amount
of the obligation underlying the contract at a specified time in the future for
a specified price. When a Fund sells a futures contract, it incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When a Fund writes an option on a futures contract, it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If a Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: Total Return Fund and Growth Fund may buy and
sell futures contracts on broadly-based stock indices ("Stock Index Futures").
Limited-Term Bond Fund and Municipal Bond Fund may buy and sell futures on
Domestic Debt Securities ("Domestic Debt Futures"). Municipal Bond Fund may buy
and sell futures on Municipal Bond Indices ("Municipal Bond Index Futures").
Total Return Fund and Growth Fund may write and purchase options on Stock Index
Futures. Limited-Term Bond Fund and Municipal Bond Fund may write and purchase
options on Domestic Debt Futures.
International Growth Fund has no present intention to purchase or sell futures
contracts or options thereon.
There is no limitation on the types of futures contracts and options thereon
that Asset Strategy Fund may purchase and sell.
Forward Contracts and Currencies. Asset Strategy Fund, International Growth
Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Funds from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, a Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. A Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. Each of these four Funds may also use
forward contracts in one currency or a basket of currencies to attempt to hedge
against fluctuations in the value of securities denominated in a different
currency if WRIMCO anticipates that there will be a correlation between the two
currencies.
Each of Asset Strategy Fund, International Growth Fund, Total Return Fund and
Growth Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one foreign currency to another.
For example, if a Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the Fund's exposure to
foreign currency exchange rate fluctuations. Each of these Funds may also
purchase forward currency contracts to enhance income when WRIMCO anticipates
that the foreign currency will appreciate in value, but securities denominated
in that currency do not present attractive investment opportunities.
International Growth Fund may hold foreign currency only in connection with
forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Total Return Fund, Growth Fund and Asset Strategy Fund may purchase and sell
foreign currency and invest in foreign currency deposits. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may purchase
and sell indexed securities, which are securities whose prices are indexed to
the prices of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators, as long as WRIMCO
determines that it is consistent with the Fund's goal and investment policies.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The performance of indexed securities depends to a
great extent on the performance of the security, currency, or other instrument
to which they are indexed, and may also be influenced by interest rate changes
in the U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments.
Swaps, Caps and Floors. Limited-Term Bond Fund and Municipal Bond Fund may
enter into interest rate swap transactions and purchase or sell interest rate
caps and floors as described below. These Funds may only enter into these
transactions in connection with hedging strategies. Limited-Term Bond Fund may
enter into swaps, caps and floors with respect to domestic interest rates.
Municipal Bond Fund may enter into such transactions with respect to municipal
interest rates. Each of these Funds expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities a
Fund anticipates purchasing at a later date.
Asset Strategy Fund is not limited in the type of swap, cap, collar or floor
it may enter into as long as WRIMCO determines it is consistent with the Fund's
goal and investment policies. Depending on how they are used, the swap, cap,
collar and floor agreements used by Asset Strategy Fund may increase or decrease
the overall volatility of its investments and its share price and yield. The
most significant factor in the performance of these agreements is the change in
the specific interest rate, currency, or other factors that determine the
amounts of payments due to and from the Fund.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if a
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. Accelerated prepayments on securities purchased by a Fund at a
premium also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of Ginnie
Mae (but not Freddie Mac or Fannie Mae) is guaranteed by the full faith and
credit of the United States. This is not a guarantee against market decline of
the value of these securities or shares of a Fund. It is possible that the
availability and marketability (i.e., liquidity) of these securities could be
adversely affected by actions of the U.S. Government to tighten the availability
of its credit. Each Fund may invest in mortgage-backed securities as long as
WRIMCO determines that it is consistent with the Fund's goal and investment
policies.
Policies and Restrictions: Limited-Term Bond Fund intends to invest a
significant percentage of its net assets in CMOs.
Asset Strategy Fund does not currently intend to invest more than 40% of its
total assets in mortgage-backed securities.
Municipal Bond Fund does not currently intend to invest more than 10% of its
assets in mortgage-backed securities.
Total Return Fund does not currently intend to invest more than 5% of its total
assets in mortgage-backed securities. Growth Fund and International Growth Fund
do not intend to invest in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: Limited-Term Bond Fund does not currently intend to
invest more than 15% of its total assets in stripped securities. Total Return
Fund and Asset Strategy Fund do not currently intend to invest more than 5% of
their respective total assets in stripped securities. Growth Fund, Municipal
Bond Fund and International Growth Fund do not currently intend to invest in
stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts, options
on futures contracts, forward contracts, swaps, caps, collars and floors and the
investment in indexed securities, stripped securities and mortgage-backed
securities, involve special risks, including (i) possible imperfect or no
correlation between price movements of the portfolio investments (held or
intended to be purchased) involved in the transaction and price movements of the
instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii) the
need for additional portfolio management skills and techniques, (iv) losses due
to unanticipated market price movements, (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
investments involved in the transaction, (vi) incorrect forecasts by WRIMCO
concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by a Fund on options
it purchases, and (viii) the possible inability of a Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Funds' respective portfolios diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not be
the same investment that is being hedged. WRIMCO will attempt to create a
closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of a Fund's
portfolio of investments and may use some of these instruments to adjust the
return characteristics of a Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative techniques for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with a
Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate,
foreign currency exchange rate or stock market trends by WRIMCO may still not
result in a successful transaction. WRIMCO may be incorrect in its expectations
as to the extent of various interest or foreign exchange rate movements or stock
market movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transaction costs and
may result in certain tax consequences.
Successful use of forward currency contracts will depend on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time.
New financial products and risk management techniques continue to be developed.
Each Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect a Fund's
yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund has sold a security on a delayed-delivery basis, a
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund and Asset Strategy Fund may purchase securities in
which it may invest on a when-issued or delayed-delivery basis or sell them on a
delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund may
not purchase securities subject to repurchase agreements. Each of the other
Funds may purchase securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities that
are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale.
Illiquid investments may be difficult to sell promptly at an acceptable price.
Difficulty in selling securities may result in a loss or may be costly to a
Fund.
Policies and Restrictions: International Growth Fund may purchase restricted
foreign securities, provided that, after such purchase, not more than 5% of its
total assets consist of such securities. Asset Strategy Fund may invest in
restricted securities. The other Funds do not intend to invest in restricted
securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and
International Growth Fund each may not invest more than 10% of its net assets in
illiquid investments.
Asset Strategy Fund may not purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in a
security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund may buy a security if, as a result, 25% or more
of the Fund's total assets would then be invested in securities of issuers
having their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S. Government
Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If a Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund, Growth
Fund, Limited-Term Bond Fund, Municipal Bond Fund and International Growth Fund
may borrow money from banks for temporary, extraordinary or emergency purposes
but only up to 5% of their respective assets.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing a Fund's income. This practice could result in a loss
or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of
Total Return Fund, Growth Fund, International Growth Fund, or 30% of the assets
of Limited-Term Bond Fund, may be loaned at any one time. As a fundamental
policy, Asset Strategy Fund may not lend more than 10% of its total assets at
one time. As a fundamental policy, Municipal Bond Fund may not lend its
securities.
Other Instruments may include rights, warrants, and securities of closed-end
investment companies. As a shareholder in an investment company, a Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, Growth Fund and, as an
operating policy, Asset Strategy Fund may purchase warrants on up to 5% of their
respective assets at the time of investment, subject to certain limitations
explained in the SAI. International Growth Fund may purchase warrants and
rights to purchase securities, provided that as a result of such purchase not
more than 5% of its total assets consist of warrants, rights or a combination
thereof, subject to certain limitations explained in the SAI.
No Fund may invest more than 5% of its respective assets taken at market value
at the time of investment in companies, including predecessors, with less than
three years continuous operation, subject to certain conditions explained in the
SAI. This restriction does not apply to U.S. Government Securities or to CMOs,
other mortgage-related securities, asset-backed securities or indexed
securities.
As a fundamental policy, Total Return Fund, Growth Fund, International Growth
Fund and Asset Strategy Fund may buy shares of other investment companies that
do not redeem their shares only if they do so in a regular transaction in the
open market and in compliance with the requirements of the Investment Company
Act of 1940. Asset Strategy Fund does not currently intend to purchase
securities of other investment companies that do not redeem their shares except
in the open market where no commission except the ordinary broker's commission
is paid and if, as a result of such purchase, not more than 10% of its total
assets are invested in such securities.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions,
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to
Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' shares are sold without a sales
charge.
A Fund's Class B NAV is the value of a single share of that Fund. A Fund's
Class B NAV is computed by adding, with respect to that Class, the value of that
Fund's investments, cash, and other assets, subtracting its liabilities, and
then dividing the result by the number of Class B shares outstanding.
The securities in a Fund's portfolio that are listed or traded on an exchange
are valued primarily using market quotations or, if market quotations are not
available, at their fair value in a manner determined in good faith by or at the
direction of the Board of Directors. Bonds are generally valued according to
prices quoted by a dealer in bonds that offers a pricing service. Short-term
debt securities are valued at amortized cost, which approximates market value.
Other assets are valued at their fair value by or at the direction of the Board
of Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges which
may trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of such Fund shares may be significantly
affected on days when the Funds do not price their shares and when you have no
access to the Funds.
When you place an order to buy shares, your order will be processed at the next
NAV calculated after your order is received and accepted. Note the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
The Funds do not issue certificates representing shares of a Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the
IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account$1,000
For certain exchanges$100
For certain retirement accounts and accounts opened through Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges$100
For Automatic Investment Service $25
The minimum investment required to open an account may be waived or reduced for
purchases by employees of Waddell & Reed, Inc. or its affiliates, certain
pension and retirement plan accounts and participants in automatic investment
plans.
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc. Mail
the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement, or
a letter showing your account number, the account registration, and stating
the Fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The Corporation will redeem your Class B shares at their NAV next calculated
after receipt of a written request for redemption in good order, subject to the
contingent deferred sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
any time during the calendar year of investment and the first full calendar year
after the calendar year of investment 3%
second full calendar year 2%
third full calendar year 1%
after third full calendar year 0%
The deferred sales charge will be applied to the total amount invested during a
calendar year to acquire shares or the value of the shares redeemed, whichever
is less. All investments made during a calendar year are deemed a single
investment during that calendar year for purposes of calculating the deferred
sales charge.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell & Reed
account representative, or write a letter of instruction with:
the name on the account registration,
the Fund's name,
the Fund account number,
the dollar amount or number of shares to be redeemed, and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Corporation may require a signature guarantee in certain
situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
Contingent Deferred Sales Charge. A contingent deferred sales charge may be
assessed against your redemption amount and paid to Waddell & Reed, Inc. (the
"Distributor"), subject to the limitation described under "Distribution" and as
further described below. The purpose of the deferred sales charge is to
compensate the Distributor for the costs incurred by it in connection with the
sale of a Fund's Class B shares. The deferred sales charge will not be imposed
on Class B shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of a shareholder's account
resulting from capital appreciation above the amount paid for Class B shares
purchased during the deferred sales charge period.
For purposes of determining the applicability and rate of any deferred sales
charge, it will be assumed that a redemption is made first of Class B shares
purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing payment of dividends and distributions and then of Class B
shares held by the shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem a
specific dollar amount, will redeem additional Class B shares equal in value to
the deferred sales charge. For example, should you request a $1,000 redemption
and the applicable deferred sales charge is $27, the Fund will redeem shares
having an aggregate net asset value of $1,027, absent different
instructions.
The deferred sales charge will not apply in the following circumstances:
in connection with redemptions of Class B shares requested within one year
of the shareholder's death or disability, provided the Corporation is
notified of the death or disability at the time of the request and furnished
proof of such event satisfactory to the Distributor.
in connection with redemptions of Class B shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code section 403(b)(7) custodial account, or a tax-
free return of an excess contribution, or that otherwise results from the
death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a result of
a subsequent law or legislation, the continuation of its investment would be
improper.
in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for a
Fund.
in connection with redemptions the proceeds of which are reinvested in
Class B shares of a Fund within thirty days after such redemption.
in connection with the exercise of certain exchange privileges.
on redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B shares of a Fund if the aggregate net asset value of
those shares is less than $500.
in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with a Fund or by a
former shareholder of such investment company of Class B shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any time
without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain notices.
The Corporation reserves the right to redeem at NAV all Class B shares of a
Fund owned or held by you having an aggregate NAV of less than $500. The
Corporation will give you notice of its intention to redeem your shares and a
60-day opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares of that Fund to $500. These redemptions are
not subject to the deferred sales charge. The Corporation will not apply its
redemption right to individual retirement plan accounts, retirement accounts or
accounts which have a net asset value of less than $500 due to market
forces.
You may reinvest in any one of the six Funds all or part of the amount you
redeemed by sending to the Fund the amount you want to reinvest. If you
reinvest within thirty days after the date of your redemption, the Distributor
will, with your reinvestment, restore an amount equal to the deferred sales
charge attributable to the amount reinvested by adding the deferred sales charge
amount to your reinvestment. For purposes of determining future deferred sales
charges, the reinvestment will be treated as a new investment. You may do this
only once as to shares of the Corporation.
This privilege may be eliminated or modified at any time without prior notice to
shareholders.
Under the terms of the 401(k) prototype plan which the Distributor has
available, the plan may have the right to make a loan to a plan participant by
redeeming Corporation shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested by
the plan in shares of any of the Funds in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Funds.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class B shares of any of the Funds and buy corresponding
shares of another Fund, or Class B shares of United Cash Management, Inc., a
fund in the United Group of Mutual Funds, without payment of a deferred sales
charge. The time period with respect to the deferred sales charge will continue
to run. Subject to certain conditions, automatic monthly exchanges of Class A
shares of United Cash Management, Inc. may be made into the Funds.
Exchanges may only be made into Funds which are legally registered for sale in
the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual or
annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund account, or
between Fund accounts, automatically. While regular investment plans do not
guarantee a profit and will not protect you against loss in a declining market,
they can be an excellent way to invest for retirement, a home, educational
expenses, and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply for
retirement accounts. Speak with your Waddell & Reed account representative for
more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing account with Waddell & Reed
Funds, Inc.
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund in Waddell & Reed
Funds, Inc., whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses, at the following times: Total Return Fund, Growth Fund and
International Growth Fund, annually in December; Asset Strategy Fund, quarterly
in March, June, September and December; and Limited-Term Bond Fund and Municipal
Bond Fund, declared daily and paid monthly. Net capital gains (and any net
realized gains from foreign currency transactions) ordinarily are distributed in
December. Each Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on its undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional shares of the distributing Fund. If you do not
indicate a choice on your application, you will be assigned this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in additional shares of the distributing Fund, but you will
be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital
gains distributions.
For retirement accounts, all distributions are automatically paid in additional
shares of the distributing Fund.
Taxes
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gains
over net short-term capital losses) that are distributed to its shareholders.
In addition, Municipal Bond Fund intends to continue to qualify to pay "exempt-
interest" dividends, which requires, among other things, that at the close of
each calendar quarter at least 50% of the value of its total assets must consist
of obligations the interest on which is excludable from gross income under
section 103(a) of the Code.
There are requirements that all Funds must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, a Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is not a tax-deferred retirement account (or you are
not otherwise exempt from income tax), you should be aware of the following tax
implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income, whether received in cash
or paid in additional Fund shares. Distributions by Municipal Bond Fund that
are designated by it as exempt-interest dividends generally may be excluded by
you from your gross income. Distributions of a Fund's realized net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or paid in additional Fund shares and regardless of the
length of time you have owned your shares. Each Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year.
A portion of the dividends paid by Total Return Fund, Growth Fund, Asset
Strategy Fund and/or International Growth Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax ("AMT"). No part of the dividends paid by any other Fund is expected to be
eligible for this deduction.
Withholding. Each Fund is required to withhold 31% of all taxable dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from taxable dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares. An exchange of shares of
one Fund for shares of any other Fund generally will have similar tax
consequences. In addition, if you purchase Class B shares of a Fund within
thirty days before or after redeeming other Class B shares of that Fund at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly-purchased shares.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that is
treated as a "tax preference item" for purposes of the AMT; such portion, which
that Fund anticipates will be not more than one-third of the dividends it will
pay to its shareholders, must be treated by you as such a tax preference item in
calculating your liability, if any, for the AMT. Municipal Bond Fund will
provide you with information concerning the amount of distributions subject to
the AMT after the end of each calendar year. Shareholders who may be subject to
the AMT should consult with their tax advisers concerning investment in that
Fund.
Interest on indebtedness incurred or continued to purchase or carry shares of
Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end management investment company
organized as a corporation under Maryland law on January 29, 1992.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has six series of shares (the "Funds"), each of which operates
as a separate mutual fund with separate assets and liabilities. Each Fund is a
diversified fund. An investor in one of the Funds has an interest only in that
Fund.
Each Fund has two classes of shares. Prior to December 2, 1995, the Funds
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class B shares, which are offered by this Prospectus. In
addition, the Funds offer Class Y shares through a separate Prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a contingent deferred sales charge and are not subject to redemption fees.
Class Y shares are subject to Rule 12b-1 fees that differ in amount from that of
the Class B shares. Additional information about Class Y shares may be obtained
by calling 913-236-2000 or by writing to Waddell & Reed, Inc. at the address on
the inside back cover of the Prospectus.
The Corporation does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by a Fund of a request in writing signed by shareholders holding not less than
10% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Corporation are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Corporation, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the outstanding shares.
Each share (regardless of Class) has one vote. All shares of a Fund (and
Classes thereof) vote together as a single Class, except as to any matter for
which a separate vote of any Fund or Class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or Class, in which case only the shareholders of the affected Fund or Class
is entitled to vote, each as a separate Class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. Waddell & Reed, Inc. and its predecessors
served as investment manager to each of the registered investment companies in
the United Group of Mutual Funds, except United Asset Strategy Fund, Inc., since
1940 or the inception of the company, whichever was later, and to TMK/United
Funds, Inc. since that fund's inception, until January 8, 1992, when it assigned
its duties as investment manager and assigned its professional staff for
investment management services to WRIMCO. WRIMCO has also served as investment
manager for Torchmark Government Securities Fund, Inc. and Torchmark Insured
Tax-Free Fund, Inc. since each commenced operations in February 1993 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management of
the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day management of the
portfolio of Growth Fund. Mr. Seferovich has held his Fund responsibilities
since September 1992. He is Vice President of WRIMCO, Vice President of the
Fund and Vice President of investment companies for which WRIMCO serves as
investment manager. Mr. Seferovich has served as the portfolio manager of
investment companies managed by Waddell & Reed, Inc. and its successor, WRIMCO,
since February 1989 and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management of the
portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Prior to that date, Mr. Sterner was Chief
Investment Officer of a bank.
John M. Holliday is primarily responsible for the day-to-day management of the
portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Mark L. Yockey is primarily responsible for the day-to-day management of the
portfolio of International Growth Fund. Mr. Yockey has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Yockey has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1990 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1986.
James D. Wineland is primarily responsible for the day-to-day management of the
portfolio of Asset Strategy Fund. Mr. Wineland has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Wineland has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1988 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1984.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole distributor of
the Corporation's shares. Waddell & Reed, Inc. also serves as underwriter for
each of the funds in the United Group of Mutual Funds and serves as the
distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing so may
consider sales of shares of each Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in the share price or
dividends of that Fund; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the close of
business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
The management fee is accrued and paid to WRIMCO daily. The management fee for
Growth Fund, International Growth Fund and Asset Strategy Fund is higher than
that of most funds. Prior to April 20, 1995, the management fee for
International Growth Fund (formerly Global Income Fund) was computed at the
annual rate of 0.66%.
For the fiscal year ended March 31, 1995, management fees for each Fund then in
existence as a percentage of each such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.70%
Growth Fund 0.80%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.66%
(formerly Global
Income Fund)
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class B shares, each Fund pays the Shareholder Servicing Agent a monthly fee for
each Class B shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month. Inquiries concerning your accounts should be sent
to the Shareholder Servicing Agent at the address shown on the inside back cover
of this Prospectus or to the Corporation.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
For the fiscal year ended March 31, 1995, total expenses for each Fund then in
existence as a percentage of each such Fund's average net assets were as
follows: Total Return Fund 2.05%; Growth Fund 2.23%; Limited-Term Bond Fund
2.17%; Municipal Bond Fund 1.94%; and International Growth Fund (formerly Global
Income Fund) 2.29%. Asset Strategy Fund began operations April 20, 1995, and
will be responsible for the same type of expenses as those Funds in existence on
March 31, 1995.
The Funds may have a high portfolio turnover. See the Financial Highlights
Table for past turnover rates of Total Return Fund, Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, and International Growth Fund. Asset Strategy
Fund cannot precisely predict what its portfolio turnover rates will be;
however, it is anticipated that the annual turnover rate for the common stock
portion of its portfolio will not exceed 200% and the annual turnover rate for
the other portion of its portfolio will not exceed 200%. International Growth
Fund's ability to invest all or a substantial amount of its assets in foreign
securities may result in a higher turnover rate and higher commission costs. A
high turnover rate will increase a Fund's transaction costs and commission costs
and could generate taxable income or loss.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized
under a Distribution and Service Plan (the "Plan"), may finance the distribution
of the Class B shares of the Funds and/or the service and maintenance of Class B
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 1%
annually of each of the Fund's average net assets of its Class B shares. There
are two parts to this fee: up to 0.75% may be paid to the Distributor for
distribution services and distribution expenses including commissions paid by
the Distributor to its sales representatives and managers (the "distribution
fee") with respect to the distribution of the particular Fund's Class B shares,
and up to 0.25% may be paid to the Distributor to finance the provision of
certain personal services by the Distributor and Waddell & Reed Services Company
to Class B shareholders and the provision of services to maintain Class B
shareholder accounts (the "Service Fee").
In addition to these fees, the Distributor may be compensated for distribution
of the Class B shares of a Fund by a contingent deferred sales charge ("deferred
sales charge") imposed at the time of redemption. See "About Your Account."
The distribution fee and the deferred sales charge are designed to allow
investors to purchase Class B shares without a front end sales charge and at the
same time to allow the Distributor to pay commissions to its field sales force
and pay other expenses of distribution including the cost of prospectuses for
prospective investors, sales literature, advertising, sales office expenses and
overhead. In this respect, the distribution fee and deferred sales charge are
comparable to a front end sales charge. See "Expenses" for the amount of these
charges and the service fee that may be paid over certain periods. The
distribution fee would be the equivalent of a 6.25% and 7.25% front end sales
charge after 9 and 10.5 years respectively, assuming a 5% growth rate. These
are the maximum sales charges permitted under Rules of the National Association
of Securities Dealers, Inc. (the "NASD") for asset-based sales charges and front
end sales charges, respectively, were the Corporation's Class B shares offered
with such charges.
No payment of the distribution fee will be made, and no deferred sales charge
will be paid, to the Distributor by any Fund if, and to the extent that, the
aggregate of the distribution fees paid by the Fund and the deferred sales
charges received by the Distributor would exceed the maximum amount of such
charges that the Distributor is permitted to receive under NASD rules as then in
effect.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
Waddell & Reed Funds, Inc.
PROSPECTUS
December 2, 1995
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
WRP4000(12-95)
printed on recycled paper
<PAGE>
SUBJECT TO COMPLETION -- Information contained herein is subject to
completion or amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission but has not yet
become effective. These securities may not be sold nor may offers to buy be
accepted before the time the registration statement becomes effective. This
Prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful before registration or
qualification under the securities laws of any such state.
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated December 2, 1995. The SAI is available free upon request to the
Corporation or Waddell & Reed, Inc., its principal underwriter and distributor,
at the address or telephone number below. The SAI is incorporated by reference
into this Prospectus and you will not be aware of all facts unless you read both
this Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Waddell & Reed Funds, Inc.
Class Y shares
Waddell & Reed Funds, Inc. is a management investment company that has six
separate funds (each a "Fund" and collectively, the "Funds"), each of which is
designed for investors with different goals. Total Return Fund seeks to provide
current income while seeking capital growth. Growth Fund seeks capital
appreciation. Limited-Term Bond Fund seeks to provide a high level of current
income consistent with preservation of capital. Municipal Bond Fund seeks to
provide income which is not subject to Federal income taxation. International
Growth Fund seeks long-term appreciation as its primary goal and realization of
income as its secondary goal. Asset Strategy Fund seeks high total return with
reduced risk over the long term.
This Prospectus describes one Class of shares of each of the Funds--Class Y
shares.
Prospectus
December 2, 1995
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS........................5
EXPENSES........................................8
FINANCIAL HIGHLIGHTS...........................20
PERFORMANCE....................................21
Explanation of Terms .........................21
ABOUT WADDELL & REED...........................23
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...24
Investment Goals and Principles ..............24
ABOUT YOUR ACCOUNT.............................25
Buying Shares ................................26
Minimum Investments ..........................29
Adding to Your Account .......................29
Selling Shares ...............................30
Telephone Transactions .......................33
Shareholder Services .........................33
Personal Service ...........................33
Reports ....................................33
Exchanges ..................................34
Dividends, Distributions and Taxes ...........34
Distributions ..............................34
Taxes ......................................35
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS.39
WRIMCO and Its Affiliates ....................41
Breakdown of Expenses ........................44
Management Fee .............................45
Other Expenses .............................46
Distribution ...............................47
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes the Class Y shares of each of the Funds of
Waddell & Reed Funds, Inc. (the "Corporation"), an open-end, management
investment company. Each Fund has different investment goals and policies.
Each of the Funds is a diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital growth.
This Fund invests primarily in common stocks, or securities convertible into
common stocks, of companies that have a record of paying regular dividends on
common stock and also have the potential for capital appreciation. Although
common stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return with reduced risk over the long
term. This Fund seeks to reduce risk over the long term by spreading its assets
among stocks, bonds, and short-term instruments, both in the United States and
abroad, attempting to moderate the risk potential of investing solely in one
class of instruments. The Fund designates a mix which represents the way the
Fund's investments will generally be allocated over the long term. This mix
will vary over short-term periods as the Fund's investment manager adjusts the
Fund's holdings - within defined ranges - based on the current outlook for the
different markets. Because the Fund owns different types of investments, its
performance will be affected by a variety of factors.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the six
Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class Y shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class Y share of
a Fund is the net asset value of a Class Y share of that Fund. A sales charge
is not incurred upon purchase of Class Y shares of a Fund, nor are the Class Y
shares subject to a contingent deferred sales charge. See "About Your Account"
for information on how to purchase Class Y shares of each of the Funds.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).29
Management fees 0.71%
12b-1 fees30 0.25%
Other expenses 0.33%
Total Fund operating expenses 1.29%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return31 and (2) redemption at the end of each time period:
1 year $13
3 years $41
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
29Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended March 31, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
30Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
31Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).32
Management fees33 0.81%
12b-1 fees34 0.25%
Other expenses 0.35%
Total Fund operating expenses 1.41%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return35 and (2) redemption at the end of each time period:
1 year $14
3 years $45
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
32Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended March 31, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
33The management fee for Growth Fund is higher than of most funds.
34Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
35Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Limited Term-Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).36
Management fees 0.56%
12b-1 fees37 0.25%
Other expenses 0.55%
Total Fund operating expenses 1.36%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return38 and (2) redemption at the end of each time period:
1 year $14
3 years $43
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
36Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended March 31, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those show.
37Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
38Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).39
Management fees 0.56%
12b-1 fees40 0.25%
Other expenses 0.41%
Total Fund operating expenses 1.22%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return41 and (2) redemption at the end of each time period:
1 year $12
3 years $39
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
39Expense ratios are based on the management fees and other Fund-level expenses
of the Fund for the fiscal year ended March 31, 1995, and the expenses
attributable to the Class Y shares that are anticipated for the current year.
Actual expenses may be greater or lesser than those shown.
40Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
41Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund42
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).43
Management fees440.81%
12b-1 fees45 0.25%
Other expenses 0.72%
Total Fund operating expenses 1.78%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return46 and (2) redemption at the end of each time period:
1 year $18
3 years $56
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
42International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
43Expense ratios are based on the management fees, which have been restated to
reflect the current management fees which became effective April 20, 1995, and
other Fund-level expenses of the Fund for the fiscal year ended March 31, 1995,
and the expenses attributable to the Class Y shares that are anticipated for the
current year. Actual expenses may be greater or lesser than those shown.
44The management fee for International Growth Fund is higher than that of most
funds.
45Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
46Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees470.81%
12b-1 fees48 0.25%
Other expenses 0.40%
Total Fund operating expenses49 1.46%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return50 and (2) redemption at the end of each time period:
1 year $15
3 years $46
Asset Strategy Fund commenced operations on April 20, 1995. The expenses are
pro forma and estimated for the first fiscal year of operations. The purpose of
the table is to assist you in understanding the various costs and expenses that
an investor in the Fund will bear directly or indirectly. The example should
not be considered a representation of past or future expenses; actual expenses
may be greater or lesser than those shown. For a more complete discussion of
certain expenses and fees, see "Breakdown of Expenses."
47The management fee for Asset Strategy Fund is higher than that of most funds.
48Expense information reflects the maximum 12b-1 fee. See "Breakdown of
Expenses" for further information about the 12b-1 fee.
49Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
50Use of an assumed annual return of 5% is for illustration purposes only and
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
Financial Highlights for Class Y shares are not included because the Funds did
not offer Class Y shares during the fiscal year ended March 31, 1995.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds may
also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each Class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over a
given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
Standardized total return figures reflect payment of the maximum applicable
contingent deferred sales charge. Non-standardized performance information is
for periods other than those required to be presented or differs otherwise from
standardized performance information.
Yield refers to the income generated by an investment in a Fund over a given
period of time, expressed as an annual percentage rate. A Fund's yield is based
on a 30-day period ending on a specific date and is computed by dividing the
Fund's net investment income per share earned during the period by the Fund's
maximum offering price per share on the last day of the period. Tax equivalent
yield is calculated by applying the stated income tax rate to only the net
investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the performance
of other selected mutual funds, selected recognized market indicators such as
the Standard & Poor's 500 Stock Index and the Dow Jones Industrial Average, or
non-market indices or averages of mutual fund industry groups. The Funds may
quote their performance rankings and/or other information as published by
recognized independent mutual fund statistical services or by publications of
general interest. In connection with a ranking, the Funds may provide
additional information, such as the particular category to which it relates, the
number of funds in the category, the criteria upon which the ranking is based,
and the effect of sales charges, fee waivers and/or expense reimbursements.
All performance information that a Fund advertises or includes in information
provided to present or prospective shareholders is historical in nature and is
not intended to represent or guarantee future results. The value of any Fund's
shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year in the
Fund's annual and semiannual reports, which are sent to all shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal of each Fund is set forth below. There is no assurance that a Fund
will achieve its goal.
Total Return Fund. The goal of Total Return Fund is to provide current income
while seeking capital growth. The Fund seeks to achieve this goal by investing
primarily in common stocks, or securities convertible into common stocks, of
companies that have a record of paying regular dividends on common stock and
also have the potential for capital appreciation.
When conditions are such that stocks with high yields are less attractive than
other common stocks, Total Return Fund may hold lower yielding or non-dividend-
paying common stocks because of their prospects for capital growth. At other
times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
Total Return Fund's assets, including, without limitation, the following: (i)
hold cash or cash equivalents (short-term investments, such as commercial paper
and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Growth Fund. The goal of Growth Fund is capital appreciation. The Fund seeks
to achieve this goal through a diversified holding of securities consisting
primarily of common stocks, or securities convertible into common stocks, of
companies that offer, in the opinion of WRIMCO, above-average growth potential,
including relatively new or unseasoned companies. Growth Fund is not intended
for investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be subject
to rapid and wide fluctuation. In selecting companies, WRIMCO usually looks for
such characteristics as aggressive or creative management, technology or
specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Limited-Term Bond Fund. The goal of Limited-Term Bond Fund is to provide a high
level of current income consistent with preservation of capital. The Fund seeks
to achieve this goal by investing primarily in debt securities of investment
grade, including U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted average
maturity of its portfolio of not less than two years and not more than five
years. The maturity of collateralized mortgage obligations and other asset-
backed securities will be deemed to be the estimated average life of such
securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may purchase
are mortgage-backed securities of the Government National Mortgage Association
("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae"). These mortgage-backed
securities include pass-through securities, participation certificates and
collateralized mortgage obligations. The Fund will invest in U.S. Government
Securities not backed by the full faith and credit of the United States only
when WRIMCO is satisfied the credit risk is acceptable. The debt securities,
other than U.S. Government Securities, in which Limited-Term Bond Fund invests
include, without limitation, corporate bonds, medium-term notes, asset-backed
securities (such as mortgage-backed securities) and other financial obligations
that are commonly considered debt, all of which securities will be denominated
in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
Limited-Term Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) emphasize debt securities of a higher quality than those the
Fund would ordinarily hold; or (iv) invest in convertible preferred stock. A
defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Municipal Bond Fund. The goal of Municipal Bond Fund is to provide income that
is not subject to Federal income taxation. The Fund seeks to achieve this goal
by investing primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the interest on
which is not includable in gross income for Federal income tax purposes. See
"Dividends, Distributions and Taxes" concerning the alternative minimum tax.
Municipal Bond Fund and WRIMCO rely on the opinion of bond counsel for the
issuer in determining whether obligations are municipal bonds.
The types of municipal bonds in which Municipal Bond Fund may invest include
"general obligation" bonds, "revenue" bonds and certain "industrial development"
bonds. Municipal obligations in which the Fund may invest also include
municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are (i) U.S.
Government Securities, (ii) bank obligations of domestic banks or savings and
loan associations that are subject to regulation by the U.S. Government
(including, without limitation, certificates of deposit, letters of credit and
acceptances), and (iii) commercial paper rated at least A by a recognized
statistical rating organization.
The ability of the governments, agencies, companies or others to pay principal
and interest on debt securities held by Municipal Bond Fund may change. Such
changes, actual or expected, may also affect the value of these debt securities,
and in turn the value of Municipal Bond Fund's shares. Dividends paid by
Municipal Bond Fund that are derived from income from taxable obligations,
options and futures contracts are subject to Federal income tax. See
"Dividends, Distributions and Taxes."
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
Municipal Bond Fund's assets, including, without limitation, the following: (i)
shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
International Growth Fund. The primary goal of International Growth Fund is the
long-term appreciation of your investment. Realization of income is a secondary
goal. The Fund seeks to achieve these goals by investing in securities issued
by companies or governments of any nation. The securities WRIMCO selects to
attempt to achieve the Fund's primary goal will be issued by companies that
WRIMCO believes have the potential for long-term growth.
There are three main kinds of securities that International Growth Fund will
own: common stocks, preferred stocks and debt securities. During normal market
conditions, the Fund will have at least 65% of its assets invested in growth
securities. The securities that the Fund purchases because they may increase in
value over the long term will usually be common stocks or securities that may be
converted into common stocks or rights for the purchase of common stocks. All
or a substantial amount of International Growth Fund's assets may be invested in
foreign securities if, in WRIMCO's opinion, doing so might assist in achieving
the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, when WRIMCO believes that a full or partial defensive position is
temporarily desirable due to present or anticipated market or economic
conditions that are affecting or could affect the value of the securities in the
Fund's portfolio, WRIMCO may take certain steps with respect to up to all of
International Growth Fund's assets, including, without limitation, the
following: (i) invest in either debt securities (including commercial paper or
U.S. Government Securities) or preferred stocks or both; or (ii) invest
completely or substantially in U.S. securities.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Asset Strategy Fund. The goal of Asset Strategy Fund is high total return with
reduced risk over the long term. The Fund seeks to achieve this goal by
allocating its assets among stocks, bonds, and short-term instruments.
Allocating assets among different types of investments allows Asset Strategy
Fund to take advantage of opportunities wherever they may occur, but also
subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and makes
changes to favor investments that it believes provide the most favorable outlook
for achieving the Fund's goal. Although WRIMCO uses its expertise and resources
in choosing investments and in allocating assets, WRIMCO's decisions may not
always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or types,
of investments. The stock class includes equity securities of all types. The
bond class includes all varieties of fixed-income instruments with maturities of
more than three years (including adjustable-rate preferred stocks). The short-
term class includes all types of short-term instruments with remaining
maturities of three years or less. Within each of these classes, Asset Strategy
Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within specified
ranges. Asset Strategy Fund's mix indicates the benchmark for its combination
of investments in each class over time. WRIMCO may change the mix within the
specified ranges from time to time. The range and approximate percentage of the
mix for each asset class are shown below. Some types of investments, such as
indexed securities, can fall into more than one asset class.
Mix Range
- --------- ------
Stock
class 10-60%
40%
Bond
class 20-60%
40%
Short-term
class 0-70%
20%
Asset Strategy Fund's approach spreads the Fund's assets among all three
classes, attempting to moderate the risk potential of stocks, bonds, and short-
term instruments. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try
to pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time. Under normal
circumstances, a single reallocation will not involve more than 10% of Asset
Strategy Fund's total assets.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, as a temporary defensive measure at times when WRIMCO believes that a
mix of stocks, bonds and certain short-term instruments does not offer a good
investment opportunity, it may temporarily invest up to all of Asset Strategy
Fund's assets in money market instruments rated A-1 by Standard & Poor's Ratings
Services ("S&P") or Prime 1 by Moody's Investors Service, Inc. ("MIS"), or
unrated securities judged by WRIMCO to be of equivalent quality.
Asset Strategy Fund diversifies across investment types more than most mutual
funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
See "Securities and Investment Practices" for more detailed information about
the types of instruments in which the Fund may invest, strategies WRIMCO may
employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to varying
degrees of market risk, financial risk, and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of each Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of each Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including options,
futures contracts, options on futures contracts, indexed securities, swaps,
caps, collars, floors, stripped securities and mortgage-backed securities. The
use of derivative instruments involves special risks. See "Risks of Derivative
Instruments" for further information on the risks of investing in these
instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of instruments
in which the Funds may invest, and strategies WRIMCO may employ in pursuit of
the Funds' investment goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help a Fund
achieve its goal. As a shareholder, you will receive annual and semiannual
reports detailing your Fund's holdings.
Certain of the investment policies and restrictions of each Fund are also stated
below. A fundamental policy of a Fund may not be changed without the approval
of the shareholders of that Fund. Operating policies may be changed by the
Board of Directors without the approval of the affected shareholders. The goal
of each Fund is a fundamental policy. Unless otherwise indicated, the types of
securities and other assets in which a Fund may invest and other policies are
operating policies.
Policies and limitations are typically considered at the time of purchase; the
sale of instruments is usually not required in the event of a subsequent change
in circumstances.
Please see the SAI for further information concerning the following instruments
and associated risks and the Funds' investment policies and restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt securities,
such as zero coupon bonds, do not pay current interest, but are purchased at a
discount from their face values. The debt securities in which a Fund (other
than Municipal Bond Fund) invests may include debt securities whose performance
is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest rates
and varying degrees of quality. As a general matter, however, when interest
rates rise, the values of fixed-rate debt securities fall and, conversely, when
interest rates fall, the values of fixed-rate debt securities rise. The values
of floating and adjustable-rate debt securities are not as sensitive to changes
in interest rates as the values of fixed-rate debt securities. Longer-term
bonds are generally more sensitive to interest rate changes than shorter-term
bonds.
U.S. Government Securities are high-quality instruments issued or guaranteed as
to principal or interest by the U.S. Treasury or by an agency or instrumentality
of the U.S. Government. Not all U.S. Government Securities are backed by the
full faith and credit of the United States. Some are backed by the right of the
issuer to borrow from the U.S. Treasury; others are backed by discretionary
authority of the U.S. Government to purchase the agencies' obligations; while
others are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment.
Lower-quality debt securities (commonly called "junk bonds") are considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt securities
rated in any rating category of the established rating services, including
securities rated in the lowest rating category (such as those rated D by S&P and
C by MIS). In addition, Asset Strategy Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating. Debt securities rated at least BBB
by S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. Debt
securities rated D by S&P or C by MIS are in payment default or are regarded as
having extremely poor prospects of ever attaining any real investment standing.
S&P and MIS ratings are described in Appendix A to the SAI. While credit
ratings are only one factor WRIMCO relies on in evaluating high-yield debt
securities, certain risks are associated with credit ratings. Credit ratings
evaluate the safety of principal and interest payments, not market value risk.
Credit ratings for individual securities may change from time to time, and a
Fund may retain a portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of public
authorities to obtain funds to finance privately operated facilities. Their
credit quality is generally dependent on the credit standing of the company
involved.
Other municipal obligations include municipal lease obligations of municipal
authorities or entities and participations in these obligations (collectively,
"lease obligations"). WRIMCO determines liquidity of lease obligations in
accordance with guidelines established by the Corporation's Board of Directors.
Unrated municipal lease obligations will be considered to be illiquid. In
determining the credit quality of unrated municipal lease obligations, one of
the factors, among others, to be considered will be the likelihood that the
lease will not be canceled. Certain "non-appropriation" lease obligations may
present special risks because the municipality's obligation to make future lease
or installment payments depends on money being appropriated each year for this
purpose.
Municipal bonds vary widely as to their interest rates, degree of security and
maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of Municipal
Bond Fund's net assets will be invested during normal market conditions in
municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal bonds of
investment grade.
Municipal Bond Fund does not intend to invest 25% or more of its assets in
industrial development bonds.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to the
SAI. Preferred stock rated AAA, AA, A or BBB by S&P or aaa, aa, a or baa by MIS
is considered to be of investment grade. Preferred stock rated BB or lower by
S&P or ba or lower by MIS is considered to have speculative characteristics.
The Funds (other than Municipal Bond Fund) may invest in preferred stock rated
in any rating category by an established rating service and unrated preferred
stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest rates,
with investment value declining as interest rates increase and increasing as
interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Zero coupon bonds do not make interest payments; instead, they are sold at a
deep discount from their face value and are redeemed at face value when they
mature. Because zero coupon bonds do not pay current income, their prices can
be very volatile when interest rates change. In calculating its dividends, a
Fund takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.
Policies and Restrictions: At least 65% of the respective total assets of
Limited-Term Bond Fund and Municipal Bond Fund will be invested during normal
market conditions in bonds.
Up to 10% of Municipal Bond Fund's assets may be invested in debt securities
other than municipal bonds ("taxable obligations").
Limited-Term Bond Fund does not intend to invest more than 50% of its assets in
securities rated in the lowest tier of investment grade debt securities (those
rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and
International Growth Fund may not invest in non-investment grade debt securities
if as a result of such investment more than 5% of that Fund's assets would
consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-quality
debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently intend to
invest in money-market instruments rated below A-1 by S&P or Prime 1 by MIS, or
judged by WRIMCO to be of equivalent quality.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions,
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government- sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the U.S. or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.
Policies and Restrictions: Normally at least 80% of International Growth Fund's
assets will be invested in foreign securities. International Growth Fund may
purchase foreign securities only if they are (i) listed or admitted to trading
on a domestic or foreign securities exchange, with the exception of warrants,
rights or restricted securities, which need not be so listed or admitted, or
(ii) represented by American Depositary Receipts (receipts issued against
securities of foreign issuers deposited or to be deposited with an American
depository) so listed or admitted on a domestic securities exchange or traded in
the United States over-the-counter ("OTC") market, or (iii) issued or guaranteed
by any foreign government or any subdivision, agency or instrumentality thereof.
Under normal market conditions, International Growth Fund will have at least 65%
of its assets invested in at least three different countries outside the United
States. International Growth Fund may not purchase a foreign security if as a
result more than 75% of its assets would be invested in securities of any one
foreign country. International Growth Fund will not invest more than 25% of its
assets in the securities issued by the government of any one foreign country.
Under normal conditions, Asset Strategy Fund intends to limit its investments in
foreign securities to no more than 50% of total assets. Asset Strategy Fund
currently intends to limit its investments in obligations of any single foreign
government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their respective
assets in foreign securities, subject to limitations explained in the SAI.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain swaps, options,
futures contracts, forward currency contracts and indexed securities to attempt
to enhance income or yield or may attempt to reduce the overall risk of its
investments by using certain options, futures contracts, forward currency
contracts, swaps, caps, collars and floors and certain other strategies
described herein. The strategies described below may be used in an attempt to
manage a Fund's foreign currency exposure as well as other risks of a Fund's
investments that can affect fluctuation in its net asset value.
Asset Strategy Fund may also use various techniques to increase or decrease its
exposure to changing security prices, interest rates, currency exchange rates,
commodity prices, or other factors that affect security values. These
techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into forward currency contracts or swap
agreements, and purchasing indexed securities.
Subject to the further limitations stated in the SAI, the Funds' limitations on
the above instruments are as follows: Total Return Fund and Growth Fund may not
purchase or sell options, futures contracts or options on futures contracts if
immediately thereafter the aggregate value of such contracts and options held by
the Fund would exceed 10% of its assets. Similarly, Municipal Bond Fund may not
purchase or sell options, futures contracts or options on futures contracts if
immediately thereafter the aggregate value of such contracts and options held by
the Fund would exceed 20% of its assets. Dividends paid by Municipal Bond Fund
that are derived from income from taxable obligations, options and futures
contracts are subject to Federal income tax. See "Dividends, Distributions and
Taxes." Limited-Term Bond Fund may not purchase or sell options, futures
contracts or options on futures contracts if immediately thereafter the
aggregate value of such options and contracts held by the Fund would exceed 25%
of its assets.
A Fund's ability to use these strategies may be limited by market conditions,
regulatory limits and tax considerations. A Fund might not use any of these
strategies, and there can be no assurance that any strategy that is used will
succeed. The risks associated with such strategies are described below. Also
see the SAI for more information on these instruments and strategies and their
risk considerations.
Options. A Fund may engage in certain strategies involving options to attempt
to enhance the Fund's income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net asset
value being more sensitive to changes in the value of the related investment.
There is no assurance that a liquid secondary market will exist for exchange-
listed options. The market for options that are not listed on an exchange may be
less active than the market for exchange-listed options. A Fund will be able to
close a position in an option it has written only if there is a market for the
put or call. If a Fund is not able to enter into a closing transaction on an
option it has written, it will be required to maintain the securities, or cash
in the case of an option on an index, subject to the call or the collateral
underlying the put until a closing purchase transaction can be entered into or
the option expires. Because index options are settled in cash, a Fund cannot
provide in advance for its potential settlement obligations on a call it has
written on an index by holding the underlying securities. The Fund bears the
risk that the value of the securities it holds will vary from the value of the
index.
Policies and Restrictions: Total Return Fund and Growth Fund may write and
purchase listed options on domestic stock indices that are not limited to stocks
of any industry or group of industries ("broadly-based stock indices"). Total
Return Fund and Growth Fund may also write listed covered call options and
purchase listed covered put options on domestic stocks as well as purchase
listed call options and write listed put options on domestic stocks that are not
covered.
Limited-Term Bond Fund and Municipal Bond Fund may write and purchase listed
options on domestic debt securities, which securities include, without
limitation, U.S. Government Securities ("Domestic Debt Securities"). Limited-
Term Bond Fund may also write and purchase OTC options on Domestic Debt
Securities. Municipal Bond Fund may write and purchase listed options on
indices of municipal bonds ("Municipal Bond Indices").
International Growth Fund may only write covered call options on securities that
are listed on a domestic securities exchange on not more than 10% of its total
assets. With respect to International Growth Fund only, a call option is
"covered" when International Growth Fund owns the securities subject to call or
has the right to acquire them without additional payment. International Growth
Fund may only purchase call options on securities to effect closing transactions
with respect to call options it has written.
There is no limitation on the types of options that Asset Strategy Fund may
purchase and sell. See the SAI for the limitations on Asset Strategy Fund's use
of options.
Futures Contracts and Options on Futures Contracts. When a Fund purchases a
futures contract, it incurs an obligation to take delivery of a specified amount
of the obligation underlying the contract at a specified time in the future for
a specified price. When a Fund sells a futures contract, it incurs an
obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When a Fund writes an option on a futures contract, it becomes obligated, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If a Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: Total Return Fund and Growth Fund may buy and sell
futures contracts on broadly-based stock indices ("Stock Index Futures").
Limited-Term Bond Fund and Municipal Bond Fund may buy and sell futures on
Domestic Debt Securities ("Domestic Debt Futures"). Municipal Bond Fund may buy
and sell futures on Municipal Bond Indices ("Municipal Bond Index Futures").
Total Return Fund and Growth Fund may write and purchase options on Stock Index
Futures. Limited-Term Bond Fund and Municipal Bond Fund may write and purchase
options on Domestic Debt Futures.
International Growth Fund has no present intention to purchase or sell futures
contracts or options thereon.
There is no limitation on the types of futures contracts and options thereon
that Asset Strategy Fund may purchase and sell.
Forward Contracts and Currencies. Asset Strategy Fund, International Growth
Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Funds from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, a Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. A Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. Each of these four Funds may also use
forward contracts in one currency or a basket of currencies to attempt to hedge
against fluctuations in the value of securities denominated in a different
currency if WRIMCO anticipates that there will be a correlation between the two
currencies.
Each of Asset Strategy Fund, International Growth Fund, Total Return Fund and
Growth Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one foreign currency to another.
For example, if a Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies the Fund's exposure to
foreign currency exchange rate fluctuations. Each of these Funds may also
purchase forward currency contracts to enhance income when WRIMCO anticipates
that the foreign currency will appreciate in value, but securities denominated
in that currency do not present attractive investment opportunities.
International Growth Fund may hold foreign currency only in connection with
forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Total Return Fund, Growth Fund and Asset Strategy Fund may purchase and sell
foreign currency and invest in foreign currency deposits. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may purchase and
sell indexed securities, which are securities whose prices are indexed to the
prices of other securities, securities indices, currencies, precious metals or
other commodities, or other financial indicators, as long as WRIMCO determines
that it is consistent with the Fund's goal and investment policies. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. The performance of indexed securities depends to a
great extent on the performance of the security, currency, or other instrument
to which they are indexed, and may also be influenced by interest rate changes
in the U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Indexed
securities may be more volatile than the underlying instruments.
Swaps, Caps and Floors. Limited-Term Bond Fund and Municipal Bond Fund may
enter into interest rate swap transactions and purchase or sell interest rate
caps and floors as described below. These Funds may only enter into these
transactions in connection with hedging strategies. Limited-Term Bond Fund may
enter into swaps, caps and floors with respect to domestic interest rates.
Municipal Bond Fund may enter into such transactions with respect to municipal
interest rates. Each of these Funds expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities a
Fund anticipates purchasing at a later date.
Asset Strategy Fund is not limited in the type of swap, cap, collar or floor it
may enter into as long as WRIMCO determines it is consistent with the Fund's
goal and investment policies. Depending on how they are used, the swap, cap,
collar and floor agreements used by Asset Strategy Fund may increase or decrease
the overall volatility of its investments and its share price and yield. The
most significant factor in the performance of these agreements is the change in
the specific interest rate, currency, or other factors that determine the
amounts of payments due to and from the Fund.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently on mortgage-backed securities and
that principal may be prepaid at any time because the underlying mortgage loans
generally may be prepaid at any time. As a result, if a Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity while a prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity. Conversely, if a
Fund purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. Accelerated prepayments on securities purchased by a Fund at a
premium also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of Ginnie
Mae (but not Freddie Mac or Fannie Mae) is guaranteed by the full faith and
credit of the United States. This is not a guarantee against market decline of
the value of these securities or shares of a Fund. It is possible that the
availability and marketability (i.e., liquidity) of these securities could be
adversely affected by actions of the U.S. Government to tighten the availability
of its credit. Each Fund may invest in mortgage-backed securities as long as
WRIMCO determines that it is consistent with the Fund's goal and investment
policies.
Policies and Restrictions: Limited-Term Bond Fund intends to invest a
significant percentage of its net assets in CMOs.
Asset Strategy Fund does not currently intend to invest more than 40% of its
total assets in mortgage-backed securities.
Municipal Bond Fund does not currently intend to invest more than 10% of its
assets in mortgage-backed securities.
Total Return Fund does not currently intend to invest more than 5% of its total
assets in mortgage-backed securities. Growth Fund and International Growth Fund
do not intend to invest in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a debt
instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: Limited-Term Bond Fund does not currently intend to
invest more than 15% of its total assets in stripped securities. Total Return
Fund and Asset Strategy Fund do not currently intend to invest more than 5% of
their respective total assets in stripped securities. Growth Fund, Municipal
Bond Fund and International Growth Fund do not currently intend to invest in
stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts, options
on futures contracts, forward contracts, swaps, caps, collars and floors and the
investment in indexed securities, stripped securities and mortgage-backed
securities, involve special risks, including (i) possible imperfect or no
correlation between price movements of the portfolio investments (held or
intended to be purchased) involved in the transaction and price movements of the
instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii) the
need for additional portfolio management skills and techniques, (iv) losses due
to unanticipated market price movements, (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the opportunity for
gain, or even result in losses, by offsetting favorable price movements in
investments involved in the transaction, (vi) incorrect forecasts by WRIMCO
concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by a Fund on options
it purchases, and (viii) the possible inability of a Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Funds' respective portfolios diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not be
the same investment that is being hedged. WRIMCO will attempt to create a
closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of a Fund's
portfolio of investments and may use some of these instruments to adjust the
return characteristics of a Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative techniques for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with a
Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to the
differences in the natures of those markets, are subject to distortion. Due to
the possibility of distortion, a correct forecast of general interest rate,
foreign currency exchange rate or stock market trends by WRIMCO may still not
result in a successful transaction. WRIMCO may be incorrect in its expectations
as to the extent of various interest or foreign exchange rate movements or stock
market movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transaction costs and
may result in certain tax consequences.
Successful use of forward currency contracts will depend on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time.
New financial products and risk management techniques continue to be developed.
Each Fund may use these instruments and techniques to the extent consistent with
its investment goal and regulatory requirements applicable to investment
companies.
When-Issued and Delayed-Delivery Transactions are trading practices in which
payment and delivery for the securities take place at a future date. The market
value of a security could change during this period, which could affect a Fund's
yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund has sold a security on a delayed-delivery basis, a
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund and Asset Strategy Fund may purchase securities in
which it may invest on a when-issued or delayed-delivery basis or sell them on a
delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund may not
purchase securities subject to repurchase agreements. Each of the other Funds
may purchase securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities that
are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale.
Illiquid investments may be difficult to sell promptly at an acceptable price.
Difficulty in selling securities may result in a loss or may be costly to a
Fund.
Policies and Restrictions: International Growth Fund may purchase restricted
foreign securities, provided that, after such purchase, not more than 5% of its
total assets consist of such securities. Asset Strategy Fund may invest in
restricted securities. The other Funds do not intend to invest in restricted
securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and
International Growth Fund each may not invest more than 10% of its net assets in
illiquid investments.
Asset Strategy Fund may not purchase a security if, as a result, more than 15%
of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in a
security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund may buy a security if, as a result, 25% or more
of the Fund's total assets would then be invested in securities of issuers
having their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S. Government
Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off.
If a Fund makes additional investments while borrowings are outstanding, this
may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund, Growth
Fund, Limited-Term Bond Fund, Municipal Bond Fund and International Growth Fund
may borrow money from banks for temporary, extraordinary or emergency purposes
but only up to 5% of their respective assets.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis for
the purpose of increasing a Fund's income. This practice could result in a loss
or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of Total
Return Fund, Growth Fund, International Growth Fund, or 30% of the assets of
Limited-Term Bond Fund, may be loaned at any one time. As a fundamental policy,
Asset Strategy Fund may not lend more than 10% of its total assets at one time.
As a fundamental policy, Municipal Bond Fund may not lend its securities.
Other Instruments may include rights, warrants, and securities of closed-end
investment companies. As a shareholder in an investment company, a Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, Growth Fund and, as an
operating policy, Asset Strategy Fund may purchase warrants on up to 5% of their
respective assets at the time of investment, subject to certain limitations
explained in the SAI. International Growth Fund may purchase warrants and
rights to purchase securities, provided that as a result of such purchase not
more than 5% of its total assets consist of warrants, rights or a combination
thereof, subject to certain limitations explained in the SAI.
No Fund may invest more than 5% of its respective assets taken at market value
at the time of investment in companies, including predecessors, with less than
three years continuous operation, subject to certain conditions explained in the
SAI. This restriction does not apply to U.S. Government Securities or to CMOs,
other mortgage-related securities, asset-backed securities or indexed
securities.
As a fundamental policy, Total Return Fund, Growth Fund, International Growth
Fund and Asset Strategy Fund may buy shares of other investment companies that
do not redeem their shares only if they do so in a regular transaction in the
open market and in compliance with the requirements of the Investment Company
Act of 1940. Asset Strategy Fund does not currently intend to purchase
securities of other investment companies that do not redeem their shares except
in the open market where no commission except the ordinary broker's commission
is paid and if, as a result of such purchase, not more than 10% of its total
assets are invested in such securities.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares are
available for purchase by:
_ participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when an unaffiliated
third party provides certain administrative, distribution, and/or other
support services to the plan and the plan holds the shares in an omnibus
account on the Fund's records;
_ banks, trust institutions and investment fund administrators investing for
their own accounts or for the accounts of their customers where such
investments for customer accounts are held in an omnibus account on the
Fund's records and to which entity an unaffiliated third party provides
certain administrative, distribution and/or other support services; and
_ government entities or authorities and corporations and to which entity an
unaffiliated third party provides certain administrative, distribution and/or
other support services where the investment is $1 million; and
_ certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' Class Y shares are sold without a
sales charge.
To purchase by wire, you must first obtain an account number by calling 1-800-
366-2520, then mail a completed application to Waddell & Reed, Inc., P.O. Box
29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044. Instruct
your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA Number
101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and Account
Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail the
check, along with your completed application, to Waddell & Reed, Inc., P.O. Box
29217, Shawnee Mission, Kansas 66201-9217.
A Fund's Class Y NAV is the value of a single share of that Fund. A Fund's
Class Y NAV is computed by adding, with respect to that Class, the value of that
Fund's investments, cash, and other assets, subtracting its liabilities, and
then dividing the result by the number of Class Y shares outstanding.
The securities in a Fund's portfolio that are listed or traded on an exchange
are valued using market quotations or, if market quotations are not available,
at their fair value in a manner determined in good faith by or at the direction
of the Board of Directors. Bonds are generally valued according to prices
quoted by a dealer in bonds that offers a pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
assets are valued at their fair value by or at the direction of the Board of
Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges which
may trade on Saturdays or on customary U.S. national business holidays when the
NYSE is closed. Consequently, the NAV of such Fund shares may be significantly
affected on days when the Funds do not price their shares and when you have no
access to the Funds.
When you place an order to buy shares, your order will be processed at the next
NAV calculated after your order is received and accepted. Note the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
The Funds do not issue certificates representing Class Y shares of a Fund.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders, including
purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You may make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you wish
to invest, along with the account number and registration, to UMB Bank, n.a.,
ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name
and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed, Inc.
Mail the check along with a letter showing your account number, the account
registration, and indicating which Fund's shares you wish to purchase to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission,
Kansas 66201-9217.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class Y
NAV.
To sell shares by telephone or fax: If you have elected this method in your
application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed account representative, or write a letter of
instruction with:
the name on the account registration,
the Fund's name,
the Fund account number,
the dollar amount or number of shares to be redeemed, and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account representative,
or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the address on
the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated after receipt of a written request in good order by Waddell & Reed,
Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Corporation may require a signature guarantee in certain
situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
The Corporation reserves the right to redeem at NAV all shares of a Fund owned
or held by you having an aggregate NAV of less than $500. The Corporation will
give you notice of its intention to redeem your shares and a 60-day opportunity
to purchase a sufficient number of additional shares to bring the aggregate NAV
of your shares of that Fund to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Funds.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class Y shares of any of the Funds and buy Class Y shares of
another Fund.
Exchanges may only be made into Funds which are legally registered for sale in
the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange privileges at
any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses, at the following times: Total Return Fund, Growth Fund and
International Growth Fund, annually in December; Asset Strategy Fund, quarterly
in March, June, September and December; and Limited-Term Bond Fund and Municipal
Bond Fund, declared daily and paid monthly. Net capital gains (and any net
realized gains from foreign currency transactions) ordinarily are distributed in
December. Each Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on its undistributed income and capital gains.
Distribution Options. When you open an account, specify on your application how
you want to receive your distributions. Each Fund offers three options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the distributing Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in additional Class Y shares of the distributing Fund, but
you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in additional
Class Y shares of the distributing Fund.
Taxes
Each Fund intends to continue to qualify for treatment as a regulated investment
company under the Code, so that it will be relieved of Federal income tax on
that part of its investment company taxable income (consisting generally of net
investment income, net short-term capital gains and net gains from certain
foreign currency transactions) and net capital gains (the excess of net long-
term capital gains over net short-term capital losses) that are distributed to
its shareholders. In addition, Municipal Bond Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each calendar quarter at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
There are requirements that all Funds must follow in order to avoid Federal
taxation. In its effort to adhere to these requirements, a Fund may have to
limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund will
be taxed. If your account is not a tax-deferred retirement account (or you are
not otherwise exempt from income tax), you should be aware of the following tax
implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income, whether received in cash
or paid in additional Fund shares. Distributions by Municipal Bond Fund that
are designated by it as exempt-interest dividends generally may be excluded by
you from your gross income. Distributions of a Fund's realized net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or paid in additional Fund shares and regardless of the
length of time you have owned your shares. Each Fund notifies you after each
calendar year-end as to the amounts of dividends and distributions paid (or
deemed paid) to you for that year.
A portion of the dividends paid by Total Return Fund, Growth Fund, Asset
Strategy Fund and/or International Growth Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by the Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax ("AMT"). No part of the dividends paid by any other Fund is expected to be
eligible for this deduction.
Withholding. Each Fund is required to withhold 31% of all taxable dividends,
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate from taxable dividends and
distributions also is required for such shareholders who otherwise are subject
to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than your adjusted basis for the redeemed shares. An exchange of shares of
one Fund for shares of any other Fund generally will have similar tax
consequences. In addition, if you purchase Class Y shares of a Fund within
thirty days before or after redeeming other Class Y shares of that Fund at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to income
taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that is
treated as a "tax preference item" for purposes of the AMT; such portion, which
that Fund anticipates will be not more than one-third of the dividends it will
pay to its shareholders, must be treated by you as such a tax preference item in
calculating your liability, if any, for the AMT. Municipal Bond Fund will
provide you with information concerning the amount of distributions subject to
the AMT after the end of each calendar year. Shareholders who may be subject to
the AMT should consult with their tax advisers concerning investment in that
Fund.
Interest on indebtedness incurred or continued to purchase or carry shares of
Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end management investment company
organized as a corporation under Maryland law on January 29, 1992.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has six series of shares, each of which operates as a separate
mutual fund with separate assets and liabilities. Each Fund is a diversified
fund. An investor in one of the Funds has an interest only in that Fund. In
addition to the Class Y shares offered by this Prospectus, the Fund has issued
and outstanding Class B shares which are offered by Waddell & Reed, Inc. through
a separate Prospectus. Prior to December 2, 1995, the Fund offered only one
class of shares to the public. Shares outstanding on that date were designated
as Class B shares. Class B shares are not subject to a sales charge on
purchases but are subject to a contingent deferred sales charge if redeemed
within a certain period of time. Class B shares are subject to a Rule 12b-1 fee
at an annual rate of up to 1% of the Fund's average net assets attributable to
Class B shares. Additional information about Class B shares may be obtained by
calling 913-236-2000 or by writing to Waddell & Reed, Inc. at the address on the
inside back cover of the Prospectus.
The Corporation does not hold annual meetings of shareholders; however, certain
significant corporate matters, such as the approval of a new investment advisory
agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt by a
Fund of a request in writing signed by shareholders holding not less than 10% of
all shares entitled to vote at such meeting, provided certain conditions stated
in the Bylaws of the Corporation are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended (the "1940 Act"), applies to the Corporation,
the directors are required to call a meeting of shareholders for the purpose of
voting upon the question of removal of any director when requested in writing to
do so by the shareholders of record of not less than 10% of the outstanding
shares.
Each share (regardless of Class) has one vote. All shares of a Fund (and
Classes thereof) vote together as a single Class, except as to any matter for
which a separate vote of any Fund or Class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or Class, in which case only the shareholders of the affected Fund or Class
is entitled to vote, each as a separate Class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the Corporation's
Board of Directors. WRIMCO provides investment advice to each of the Funds and
supervises each Fund's investments. Waddell & Reed, Inc. and its predecessors
served as investment manager to each of the registered investment companies in
the United Group of Mutual Funds, except United Asset Strategy Fund, Inc., since
1940 or the inception of the company, whichever was later, and to TMK/United
Funds, Inc. since that fund's inception, until January 8, 1992, when it assigned
its duties as investment manager and assigned its professional staff for
investment management services to WRIMCO. WRIMCO has also served as investment
manager for Torchmark Government Securities Fund, Inc. and Torchmark Insured
Tax-Free Fund, Inc. since each commenced operations in February 1993 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management of
the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day management of the
portfolio of Growth Fund. Mr. Seferovich has held his Fund responsibilities
since September 1992. He is Vice President of WRIMCO, Vice President of the
Fund and Vice President of investment companies for which WRIMCO serves as
investment manager. Mr. Seferovich has served as the portfolio manager of
investment companies managed by Waddell & Reed, Inc. and its successor, WRIMCO,
since February 1989 and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management of the
portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Prior to that date, Mr. Sterner was Chief
Investment Officer of a bank.
John M. Holliday is primarily responsible for the day-to-day management of the
portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Mark L. Yockey is primarily responsible for the day-to-day management of the
portfolio of International Growth Fund. Mr. Yockey has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Yockey has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1990 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1986.
James D. Wineland is primarily responsible for the day-to-day management of the
portfolio of Asset Strategy Fund. Mr. Wineland has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Wineland has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1988 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1984.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole distributor of
the Corporation's shares. Waddell & Reed, Inc. also serves as underwriter for
each of the funds in the United Group of Mutual Funds and serves as the
distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder Servicing
Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell & Reed,
Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed Financial
Services, Inc., a holding company, and an indirect subsidiary of United
Investors Management Company, a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing so may
consider sales of shares of each Fund and other funds it manages as a factor in
the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily operations.
Expenses paid out of each Fund's assets are reflected in the share price or
dividends of that Fund; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice and
supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the close of
business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
The management fee is accrued and paid to WRIMCO daily. The management fee for
Growth Fund, International Growth Fund and Asset Strategy Fund is higher than
that of most funds. Prior to April 20, 1995, the management fee for
International Growth Fund (formerly Global Income Fund) was computed at the
annual rate of 0.66%.
For the fiscal year ended March 31, 1995, management fees for each Fund then in
existence as a percentage of each such Fund's net assets, which during that
period consisted only of the Fund's Class B shares were as follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.70%
Growth Fund 0.80%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.66%
(formerly Global
Income Fund)
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the average
net assets of the Fund for accounting services. With respect to its Class Y
shares, each Fund pays the Shareholder Servicing Agent a monthly fee based on
the average daily net assets of the Class for the preceding month.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Funds may have a high portfolio turnover. See the Financial Highlights
Table for past turnover rates of Total Return Fund, Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, and International Growth Fund. Asset Strategy
Fund cannot precisely predict what its portfolio turnover rates will be;
however, it is anticipated that the annual turnover rate for the common stock
portion of its portfolio will not exceed 200% and the annual turnover rate for
the other portion of its portfolio will not exceed 200%. International Growth
Fund's ability to invest all or a substantial amount of its assets in foreign
securities may result in a higher turnover rate and higher commission costs. A
high turnover rate will increase a Fund's transaction costs and commission costs
and could generate taxable income or loss.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized under
a Distribution and Service Plan (the "Plan"), may finance the distribution of
the Class Y shares of the Funds and/or the service and maintenance of Class Y
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 0.25%
of each of the Fund's average net assets of its Class Y shares. There are two
parts to this fee: all or a portion of the fee may be paid to the Distributor
for distribution services and distribution expenses including commissions paid
by the Distributor to its account representatives and account managers (the
"distribution fee") with respect to a particular Fund's Class Y shares; and all
or a portion of the fee may be paid to the Distributor to finance the provision
of certain personal services by the Distributor and Waddell & Reed Services
Company to Class Y shareholders and the provision of services to maintain Class
Y shareholder accounts (the "service fee"). However, the total amount of the
distribution fee and service fee paid by a Fund pursuant to the Plan will not
exceed, on an annual basis, 0.25% of the average net assets of that Fund's Class
Y shares.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
Waddell & Reed Funds, Inc.
PROSPECTUS
December 2, 1995
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
WRP4000Y(12-95)
printed on recycled paper
<PAGE>
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
December 2, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
(the "Prospectus") for the Class B shares or the Class Y shares, as applicable,
of Waddell & Reed Funds, Inc. (the "Corporation") dated December 2, 1995, which
may be obtained from the Corporation or its principal underwriter and
distributor, Waddell & Reed, Inc., at the address or telephone number shown
above.
TABLE OF CONTENTS
Performance Information .......................... 2
Goals and Investment Policies ....................4
Investment Management and Other Services ......... 40
Purchase, Redemption and Pricing of Shares ....... 46
Directors and Officers ........................... 52
Payments to Shareholders ......................... 57
Taxes ............................................ 58
Portfolio Transactions and Brokerage ............. 63
Other Information ................................ 67
Appendix A ....................................... 68
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's principal underwriter and
distributor (the "Distributor"), or the Corporation may from time to time
publish for one or more of the six Funds (each a "Fund" and collectively the
"Funds") total return information, yield information and/or performance rankings
in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the
average annual compounded rates of return over the one-, five-, and ten-year
periods that would equate the initial amount invested to the ending redeemable
value. Total return is calculated by assuming an initial $1,000 investment.
Class B shares redeemed during the first four years after their purchase may be
subject to a contingent deferred sales charge (the "deferred sales charge") in a
maximum amount equal to 3%. See "Purchase, Redemption and Pricing of Shares."
The average annual total return quotations for Class B shares reflect the
imposition of the maximum applicable deferred sales charge. All dividends and
distributions are assumed to be reinvested in shares of the applicable Class at
net asset value as of the day the dividend or distribution is paid. No sales
load is charged on reinvested dividends or distributions on Class B shares. The
formula used to calculate the average annual total return for a particular Class
of the Funds is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented that may not
reflect the deferred sales charge.
The average annual total return quotations with the maximum deferred sales
charge deducted as of March 31, 1995, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
One Year Period Period from
From 4-1-94 9-21-92* to
to 3-31-95 3-31-95
--------------- -----------
Total Return Fund 3.17% 9.78%
Growth Fund 19.61% 25.32%
Limited-Term Bond Fund -0.23% 2.22%
Municipal Bond Fund 3.37% 5.36%
International Growth Fund 0.84% 0.75%
*Date of initial public offering
The average annual total return quotations without the maximum deferred
sales charge deducted as of March 31, 1995, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
One Year Period Period from
From 4/1/94 9/21/92* to
to 3-31-95 3-31-95
--------------- --------------
Total Return Fund 6.17% 10.12%
Growth Fund 22.61% 25.60%
Limited-Term Bond Fund 2.73% 2.59%
Municipal Bond Fund 6.37% 5.72%
International Growth Fund 3.84% 1.12%
*Date of initial public offering
Prior to December 2, 1995, the Funds offered only one Class of shares to
the public. Shares of each Fund outstanding on that date were designated as
Class B shares. Since that date, Class Y shares of each of the Funds have been
available to certain institutional investors.
International Growth Fund (formerly Global Income Fund) changed its name
and investment objective effective April 20, 1995. Prior to this change, this
Fund's policies related to providing a high level of current income rather than
long-term appreciation. Asset Strategy Fund began operations on April 20, 1995,
therefore, total return quotations are not shown for this Fund.
Yield
A yield quoted for a Fund is computed by dividing the net investment income
per share earned during the period for which the yield is shown by the maximum
offering price per share on the last day of that period according to the
following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yields computed according to the formula for the 30-day period ended on
March 31, 1995, the date of the most recent balance sheet included in this SAI,
for Limited-Term Bond Fund and Municipal Bond Fund are:
Limited-Term Bond Fund 4.92%
Municipal Bond Fund 4.78%
Municipal Bond Fund may also advertise or include in sales materials its
tax equivalent yield, which is calculated by applying the stated income tax rate
to only the net investment income exempt from taxation according to a standard
formula which provides for computation of tax equivalent yield by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
The tax equivalent yield computed according to the formula for the 30-day
period ended on March 31, 1995, the date of the most recent balance sheet
included in this SAI, is 5.59%, 6.56%, 6.84%, 7.36% and 7.78% for marginal tax
brackets of 15%, 28%, 31%, 36% and 39.6%, respectively.
Changes in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses.
Yield quotations do not reflect the imposition of the deferred sales charge
described above. If such deferred sales charge imposed at the time of
redemption was reflected, it would reduce the performance quoted.
Non-standardized performance information may also be presented.
Performance Rankings
The Distributor or the Corporation also may from time to time publish
for one or more of the six Funds in advertisements or sales material performance
rankings as published by recognized independent mutual fund statistical services
such as Lipper Analytical Services, Inc., or by publications of general interest
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune
or Morningstar Mutual Fund Values. Each Class of a Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Funds are described in the
Prospectus, which refers to the following investment methods and practices.
Asset Allocation
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments:
The short-term class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three years
or less. Waddell & Reed Investment Management Company, investment manager to
the Funds ("WRIMCO"), will seek to maximize total return within the short-term
asset class by taking advantage of yield differentials between different
instruments, issuers, and currencies. Short-term instruments may include
corporate debt securities, such as commercial paper and notes; government
securities issued by U.S. or foreign governments or their agencies or
instrumentalities; bank deposits and other financial institution obligations;
repurchase agreements involving any type of security; and other similar short-
term instruments. These instruments may be denominated in U.S. dollars or
foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. WRIMCO seeks to maximize
total return within the bond class by adjusting Asset Strategy Fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Strategy Fund may also invest in lower
quality, high-yielding debt securities (commonly referred to as "junk bonds").
The Fund currently intends to limit its investments in these securities to 20%
of its total assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
WRIMCO seeks to take advantage of yield differentials by considering the
purchase or sale of instruments when differentials on spreads between various
grades and maturities of such instruments approach extreme levels relative to
long-term norms.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Securities - General
The main types of securities in which the Funds may invest include
common stock, preferred stock, debt securities and convertible securities, as
described in the Prospectus. These securities may include the following
described securities from time to time.
All of the Funds (other than Municipal Bond Fund) may purchase debt
securities whose principal amount at maturity is dependent upon the performance
of a specified equity security. The issuer of such debt securities, typically
an investment banking firm, is unaffiliated with the issuer of the equity
security to whose performance the debt security is linked. Equity-linked debt
securities differ from ordinary debt securities in that the principal amount
received at maturity is not fixed, but is based on the price of the linked
equity security at the time the debt security matures. The performance of
equity-linked debt securities depends primarily on the performance of the linked
equity security and may also be influenced by interest rate changes. In
addition, although the debt securities are typically adjusted for diluting
events such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash. Such
an issuance could adversely affect the price of the debt security. In addition
to the equity risk relating to the linked equity security, such debt securities
are also subject to credit risk with regard to the issuer of the debt security.
In general, however, such debt securities are less volatile than the equity
securities to which they are linked.
All of the Funds (other than Municipal Bond Fund) may also invest in a type
of convertible preferred stock that pays a cumulative, fixed dividend that is
senior to, and expected to be in excess of, the dividends paid on the common
stock of the issuer. At the mandatory conversion date, the preferred stock is
converted into not more than one share of the issuer's common stock at the "call
price" that was established at the time the preferred stock was issued. If the
price per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock (plus
cash in the amount of any accrued but unpaid dividends). At any time prior to
the mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call price
of the preferred stock in effect on the date of redemption divided by the market
value of the common stock, with such market value typically determined one or
two trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association, Farmers Home Administration, Export-
Import Bank of the United States, Small Business Administration, Government
National Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Farm Credit Banks, Maritime Administration, the Tennessee Valley Authority, the
Resolution Funding Corporation, and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by the Federal National Mortgage
Association, are supported only by the credit of the instrumentality and not by
the Treasury. If the securities are not backed by the full faith and credit of
the United States, the owner of the securities must look principally to the
agency issuing the obligation for repayment and may not be able to assert a
claim against the United States in the event that the agency or instrumentality
does not meet its commitment. Limited-Term Bond Fund will invest in securities
of agencies and instrumentalities only if WRIMCO is satisfied that the credit
risk involved is acceptable.
U.S. Government Securities may include mortgage-backed securities of the
Government National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage
Association ("Fannie Mae"). These mortgage-backed securities include "pass-
through" securities and "participation certificates." Another type of mortgage-
backed security is a collateralized mortgage obligation ("CMO"). See "Mortgage-
Backed Securities." Timely payment of principal and interest on Ginnie Mae
pass-throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a government agency, or a corporation in zero coupon form.
Municipal Bonds
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main kinds of municipal
bonds are "general obligation" bonds and "revenue" bonds. In "general
obligation" bonds, the issuer has pledged its full faith, credit and taxing
power for the payment of principal and interest. "Revenue" bonds are payable
only from specific sources; these may include revenues from a particular
facility or class of facilities or special tax or other revenue source.
A special class of bonds issued by state and local government authorities
and agencies are "industrial development bonds." Only those industrial
development bonds the interest on which is free from Federal income taxation
(although it may be an item of tax preferences for purposes of the alternative
minimum tax) will be considered "municipal bonds." In general, industrial
development bonds are revenue bonds and are issued by or on behalf of public
authorities to obtain funds to finance privately operated facilities. They
generally depend for their credit quality on the credit standing of the company
involved. Municipal Bond Fund may not be an appropriate investment for entities
that are "substantial users" of facilities financed by industrial development
bonds or for investors who are "related persons," as such terms are defined in
the Internal Revenue Code of 1986, as amended (the "Code"). Such entities and
persons should consult with their tax advisers before investing in Municipal
Bond Fund. Municipal Bond Fund does not intend to invest 25% or more of its
assets in industrial development bonds.
Municipal leases and participation interests therein are another specific
type of municipal bond. The factors to be considered in determining whether or
not any rated municipal lease obligations are liquid include (i) the frequency
of trades and quotes for the obligations; (ii) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (iii)
the willingness of dealers to undertake to make a market in the securities; (iv)
the nature of marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer; (v) the
likelihood that the marketability of the obligation will be maintained through
the time the instrument is held; (vi) the credit quality of the issuer and the
lessee; and (vii) the essentiality to the lessee of the property covered by the
lease. Unrated municipal lease obligations are considered illiquid. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a variety of equipment and facilities. The
Funds have not held and do not intend to hold such obligations directly as a
lessor of the property, but may from time to time purchase a participation
interest in a municipal obligation from a bank or other third party. A
participation interest gives a Fund a specified, undivided interest in the
obligation in proportion to its purchased interest in the total amount of the
obligation. Municipal leases frequently have risks distinct from those
associated with general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet to incur
debt, including voter referenda, interest rate limits or public sale
requirements. Leases, installment purchases or conditional sale contracts have
evolved as a means for governmental issuers to acquire property and equipment
without being required to meet these constitutional and statutory requirements.
Many leases and contracts include "non-appropriation clauses" providing that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the legislative body
on a yearly or other periodic basis. Non-appropriation clauses free the issuer
from debt issuance limitations. In determining the liquidity of a municipal
lease obligation, WRIMCO will differentiate between direct interests in
municipal leases and municipal lease-backed securities, the latter of which may
take the form of a lease-backed revenue bond, a tax-exempt asset-backed security
or any other investment structure using a municipal lease-purchased agreement as
its base. While the former may present liquidity issues, the latter are based
on a well established method of securing payment of a municipal lease
obligation.
WRIMCO and the Funds rely on the opinion of bond counsel for the issuer
in determining whether obligations are municipal bonds. If a court should hold
that an obligation held by a Fund is not a municipal bond (i.e., that the
interest thereon is taxable), Municipal Bond Fund will sell the obligation as
soon as possible, but it might incur a loss upon such sale.
With respect to ratings of municipal bonds (see Appendix A to this SAI),
now or in the future, Standard & Poor's Ratings Services ("S&P") or Moody's
Investors Service, Inc. ("MIS") may use different rating designations for
municipal bonds depending on their maturities on issuance or other
characteristics. For example, MIS currently rates the top four categories of
"municipal notes" (i.e., municipal bonds generally with a maturity at the time
of issuance ranging from six months to three years) as MIG 1, MIG 2, MIG 3 and
MIG 4. Subject to the particular Fund's goal and investment policies, municipal
bonds purchased by a Fund (other than Asset Strategy Fund) will be considered
investment grade for purposes of the percentage limits in the Prospectus if they
are within the top four rating designations of S&P or MIS for the type of
municipal bond in question. A Fund is not required to dispose of any municipal
bond if its rating falls below the rating required for its purchase, nor does
such a fall in rating affect the amount of unrated municipal bonds which a Fund
may buy.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed by
a mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Pass-through securities and participation certificates represent pools of
mortgages that are assembled, with interests sold in the pool; the assembly is
made by an "issuer," such as a mortgage banker, commercial bank or savings and
loan association, which assembles the mortgages in the pool and passes through
payments of principal and interest for a fee payable to it. Payments of
principal and interest by individual mortgagors are passed through to the
holders of the interest in the pool. Monthly or other regular payments on pass-
through securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.
Each Fund (other than Municipal Bond Fund) may purchase mortgage-backed
securities issued by both government and non-government entities such as banks,
mortgage lenders, or other financial institutions. Other types of mortgage-
backed securities will likely be developed in the future, and each Fund may
invest in them if WRIMCO determines they are consistent with the Fund's goal and
investment policies. Municipal Bond Fund may only purchase mortgage-backed
securities issued by government entities.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Growth Fund and International Growth Fund do not currently intend to invest
in mortgage-backed securities.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.
Growth Fund, Municipal Bond Fund and International Growth Fund do not
currently intend to invest in stripped securities.
Asset-Backed Securities
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as pass-
through securities. Interest and principal payments ultimately depend upon
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement. Each Fund may invest in asset-
backed securities as long as WRIMCO determines that it is consistent with the
Fund's goal and investment policies. Asset Strategy Fund does not currently
intend to invest in non-mortgage asset-backed securities.
Bank Deposits
Among the debt securities in which the Funds may invest are deposits in
banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits ("Insured Deposits"),
currently to the extent of $100,000 per bank. Insured Deposits are not
marketable, and a Fund may invest in them only within the limit mentioned under
"Illiquid Investments" unless such obligations are payable at principal amount
plus accrued interest on demand or within seven days after demand.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and carry rights
that permit holders to demand payment of the unpaid principal balance plus
accrued interest from the issuers or certain financial intermediaries. Floating
rate securities have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value. Each Fund
may invest in variable and floating rate instruments as long as WRIMCO
determines that it is consistent with the Fund's goal and investment
policies.
Indexed Securities
Each Fund (other than Municipal Bond Fund) may purchase securities whose
prices are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial indicators,
as long as WRIMCO determines that it is consistent with the Fund's goal and
investment policies. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. WRIMCO will use its judgment in determining
whether indexed securities should be treated as short-term instruments, bonds,
stocks, or as a separate asset class for purposes of Asset Strategy Fund's
investment allocations, depending on the individual characteristics of the
securities. Certain indexed securities that are not traded on an established
market may be deemed illiquid.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to a
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and
principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt instruments
that are not in the form of securities may offer less legal protection to a Fund
in the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a Fund relies on WRIMCO's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Investments in direct debt instruments may entail less legal protection
for a Fund. Direct indebtedness purchased by a Fund may include letters of
credit, revolving credit facilities, or other standby financing commitments
obligating a Fund to pay additional cash on demand. These commitments may have
the effect of requiring a Fund to increase its investment in a borrower at a
time when it would not otherwise have done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid. A Fund will set aside
appropriate liquid assets in a segregated custodial account to cover its
potential obligations under standby financing commitments. Other types of
direct debt instruments, such as loans through direct assignment of a financial
institution's interest with respect to a loan, may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
For purposes of the limitations on the amount of total assets that a Fund
will invest in any one issuer or in issuers within the same industry, a Fund
generally will treat the borrower as the "issuer" of indebtedness held by the
Fund. In the case of loan participations where a bank or other lending
institution serves as financial intermediary between a Fund and the borrower, if
the participation does not shift to the Fund the direct debtor-creditor
relationship with the borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Securities and Currencies
International Growth Fund and Asset Strategy Fund may purchase
securities of foreign issuers, subject to the restrictions described in the
Prospectus. Limited-Term Bond Fund and Municipal Bond Fund may not invest in
foreign securities. Total Return Fund and Growth Fund may purchase securities
of foreign issuers only if immediately after any such purchase not more than 10%
of that Fund's assets are foreign securities and only if those foreign
securities (i) are, or are represented by depositary receipts that are, listed
or admitted to trading on a domestic or foreign securities exchange, or in the
case of American depositary receipts, so listed or traded in the U.S. over-the-
counter ("OTC") market; or (ii) are issued or guaranteed by any foreign
government or any subdivision, agency or instrumentality thereof.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American depositary receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are more recently developed receipts designed to facilitate the trading
of foreign issuers by U.S. and non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Individual foreign companies may
also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. WRIMCO believes that ability to invest assets abroad might
enable a Fund to take advantage of these differences and strengths where they
are favorable.
Further, an investment in foreign securities may be affected by changes
in currency rates and in exchange control regulations (i.e., currency blockage).
A Fund may bear a transaction charge in connection with the exchange of
currency. There may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. Most foreign stock
markets have substantially less volume than the New York Stock Exchange (the
"NYSE") and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government regulation of stock exchanges, brokers and listed companies than
in the United States. In addition, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments that could adversely affect
investments in securities of issuers located in those countries. If it should
become necessary, a Fund would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. issuer.
Restricted Securities
Asset Strategy Fund may invest in restricted securities subject to its
limitation on investment in illiquid investments. See "Illiquid Investments."
International Growth Fund may purchase foreign restricted securities; however,
as an operating policy, International Growth Fund may not purchase restricted
securities if as a result of such purchase more than 5% of its total assets
would consist of restricted securities. The other Funds do not intend to invest
in restricted securities.
Restricted securities generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in
that there can be no assurance of a ready market for resale. Also, the
contractual restrictions on resale might prevent a Fund from reselling the
securities at a time when such sale would be desirable. Restricted securities
in which a Fund seeks to invest need not be listed or admitted to trading on a
foreign or domestic exchange and may be less liquid than listed securities. See
"Illiquid Investments."
Lending Securities
Each of the Funds (except Municipal Bond Fund) may lend its portfolio
securities to attempt to increase income. If a Fund does this, the borrower
pays the Fund an amount equal to the dividends or interest on the securities
that the Fund would have received if it had not loaned the securities. The Fund
also receives additional compensation.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). Under the present
Guidelines, the collateral must consist of cash, U.S. Government Securities or
bank letters of credit, at least equal in value to the market value of the
securities loaned on each day that the loan is outstanding. If the market value
of the loaned securities exceeds the value of the collateral, the borrower must
add more collateral so that it at least equals the market value of the
securities loaned. If the market value of the securities decreases, the
borrower is entitled to the return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund. Under the Funds' current securities lending procedures, a Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. A Fund will make loans only under rules of the NYSE, which presently
require the borrower to give the securities back to the Fund within five
business days after the Fund gives notice to do so. If a Fund loses its voting
rights on securities loaned, it will have the securities returned to it in time
to vote them if a material event affecting the investment is to be voted on. A
Fund may pay reasonable finder's, administrative and custodian fees in
connection with loans of securities.
No more than 10% of the respective assets of Total Return Fund, Growth
Fund or International Growth Fund, or 30% of the assets of Limited-Term Bond
Fund, may be loaned at any one time. As a fundamental policy, Asset Strategy
Fund may not lend more than 10% of its total assets at one time. There may be
risks of delay in receiving additional collateral from the borrower if the
market value of the securities loaned increases, risks of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially.
Repurchase Agreements
Each of the Funds, except Municipal Bond Fund, may purchase securities
subject to repurchase agreements subject to its limitation on investment in
illiquid investments. See "Illiquid Investments." A repurchase agreement is an
instrument under which a Fund purchases a security and the seller (normally a
commercial bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which the
resale price is greater than the purchase price reflects an agreed-upon market
interest rate effective for the period of the agreement. The return on the
securities subject to the repurchase agreement may be more or less than the
return on the repurchase agreement.
The majority of the repurchase agreements in which a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
than that from the repurchase agreement. The Funds' repurchase agreements will
be structured so as to fully collateralize the loans, i.e., the value of the
underlying securities, which will be held by the Fund's custodian bank or by a
third party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), is and, during the entire term
of the agreement, will remain at least equal to the value of the loan, including
the accrued interest earned thereon. Repurchase agreements are entered into
only with those entities approved by WRIMCO on the basis of criteria established
by the Board of Directors.
Warrants and Rights
Growth Fund may not invest more than 5% of its assets (at the time of
investment) in warrants (other than those that have been acquired in units or
attached to other securities). Of such 5%, no more than 2% of its assets (at
the time of investment) may be invested in warrants that are not listed on the
NYSE or the American Stock Exchange. Asset Strategy Fund does not currently
intend to purchase warrants, valued at the lower of cost or market, in excess of
5% of its net assets. Included in that amount, but not to exceed 2% of its net
assets, may be warrants that are not listed on the NYSE or the American Stock
Exchange. Warrants acquired by Asset Strategy Fund in units or attached to
securities are not subject to these restrictions. International Growth Fund may
purchase warrants or rights to purchase securities ("rights") provided that the
Fund will not purchase warrants or rights if as a result of such purchase more
than 5% of its total assets would consist of warrants, rights or a combination
thereof, not including warrants or rights acquired in units or attached to other
securities. Certain states may impose a lower percentage limit on investments
in warrants and rights.
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
Each of International Growth Fund, Municipal Bond Fund, Limited-Term
Bond Fund and Asset Strategy Fund may purchase any securities in which it may
invest on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis. The securities so purchased or sold by a Fund are subject to
market fluctuations; their value may be less or more when delivered than the
purchase price paid or received. For example, delivery to a Fund and payment by
a Fund in the case of a purchase by it, or delivery by a Fund and payment to it
in the case of a sale by a Fund, may take place a month or more after the date
of the transaction. The purchase or sale price is fixed on the transaction
date. A Fund will enter into when-issued or delayed-delivery transactions in
order to secure what is considered to be an advantageous price and yield at the
time of entering into the transaction. No interest accrues to a Fund until
delivery and payment is completed. When a Fund makes a commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of the securities in determining
its net asset value per share. The securities so sold by a Fund on a delayed-
delivery basis are also subject to market fluctuation; their value when a Fund
delivers them may be more than the purchase price the Fund receives. When a
Fund makes a commitment to sell securities on a delayed-delivery basis, it will
record the transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily a Fund purchases securities on a when-issued or delayed-delivery
basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Illiquid Investments
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not invest more than 10% of their
respective net assets in illiquid investments. Asset Strategy Fund does not
currently intend to purchase a security if, as a result, more than 15% of its
net assets would be invested in illiquid investments. Investments currently
considered to be illiquid include: (i) repurchase agreements not terminable
within seven days; (ii) securities for which market quotations are not readily
available; (iii) OTC options and their underlying collateral; (iv) Insured
Deposits, unless they are payable at principal amount plus accrued interest on
demand or within seven days after demand; (v) restricted securities not
determined to be liquid pursuant to guidelines established by the Board of
Directors; (vi) securities involved in swap, cap, collar and floor transactions;
(vii) non-government stripped fixed-rate mortgage-backed securities; and (viii)
direct debt instruments. The assets used as cover for OTC options written by a
Fund will be considered illiquid unless the OTC options are sold to qualified
dealers who agree that the Fund may repurchase any OTC option it writes at a
maximum price to be calculated by a formula set forth in the option agreement.
The cover for an OTC option written subject to this procedure would be
considered illiquid only to the extent that the maximum repurchase price under
the formula exceeds the intrinsic value of the option.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts, forward currency contracts, swaps, caps, collars, floors and
indexed securities (collectively "Financial Instruments") to attempt to enhance
the Funds' income or yield or to attempt to hedge the Funds' portfolios. A
Fund's ability to use a particular Financial Instrument may be limited by its
operating policies.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge, a Fund takes a
position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge, a Fund takes a position in a Financial Instrument whose price is expected
to move in the same direction as the price of the prospective investment being
hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an
anticipatory hedge transaction, a Fund does not own a corresponding security
and, therefore, the transaction does not relate to a security the Fund owns.
Rather, it relates to a security that the Fund intends to acquire. If a Fund
does not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the transaction
were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which a Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, a Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts,
forward currency contracts, swaps, caps, collars, floors and other similar or
related techniques. These new opportunities may become available as WRIMCO
develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts, options on futures
contracts, forward currency contracts, swaps, caps, collars, floors or other
techniques are developed. WRIMCO may utilize these opportunities to the extent
that they are consistent with a Fund's investment goals and permitted by a
Fund's investment limitations and applicable regulatory authorities. The Funds'
Prospectus or this SAI will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Financial Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction (the "counterparty") to
enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash, receivables and short-term debt
securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount as determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. As discussed in the Prospectus, certain of the Funds may purchase
and/or write (sell) call and put options on equity and debt securities, foreign
currencies, stock indices and bond indices. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable a Fund to enhance income or yield by
reason of the premiums paid by the purchasers of such options. However, if the
market price of the security underlying a put option declines to less than the
exercise price on the option, minus the premium received, the Fund would expect
to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value.
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Certain of the Funds may purchase or write
both exchange-traded and OTC options. Exchange markets for options on debt
securities and foreign currencies exist, but these instruments are primarily
traded on the OTC market. Exchange-traded options in the United States are
issued by a clearing organization affiliated with the exchange on which the
option is listed that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between a Fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a Fund purchases an OTC option, it relies on
the counterparty from whom it purchased the option to make or take delivery of
the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the Fund
as well as the loss of any expected benefit of the transaction.
Generally, the OTC foreign currency options used by a Fund are European-
style options. This means that the option is only exercisable immediately prior
to its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. Each Fund (other than
Asset Strategy Fund) intends to purchase or write only those exchange-trade
options for which there appears to be a liquid secondary market. However, there
can be no assurance that such a market will exist at any particular time.
Closing transactions can be made for OTC options only by negotiating directly
with the counterparty, or by a transaction in the secondary market if any such
market exists. Although a Fund will enter into OTC options only with major
dealers in unlisted options, there is no assurance that the Fund will in fact be
able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the counterparty, the Fund might be
unable to close out an OTC option position at any time prior to its
expiration.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and, consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options will result in a Fund's net asset value being more sensitive
to changes in the value of the related investment.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
a Fund buys a call on an index, it pays a premium and has the same rights as to
such call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the difference between the closing level of the index and the exercise price
times the multiplier if the closing level is less than the exercise price.
Risks of Options on Indices. The risks of investment in options on indices
may be greater than options on securities. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. The Fund can offset some of the risk of writing a call index option
by holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that it has
been assigned until the next business day at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
Limitations on the Use of Options. The Funds' use of options on
securities, currencies and indices is governed by the following guidelines,
which can be changed by the Corporation's Board of Directors without a
shareholder vote:
(1) options may be purchased or written only by a Fund (other than Asset
Strategy Fund) when WRIMCO believes that there exists a liquid secondary market
in such options;
(2) Total Return Fund and Growth Fund may only write call options that are
listed and covered and may only purchase put options that are listed and covered
and each such option will remain covered so long as the Fund is obligated under
the option (except in the case of closing transactions);
(3) Total Return Fund, Growth Fund, Limited-Term Bond Fund and Municipal
Bond Fund each may not write call options having aggregate exercise prices
greater than 25% of its net assets;
(4) International Growth Fund may only write covered call options on
securities that are listed on a domestic securities exchange on not more than
10% of its total assets; and
(5) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and Asset Strategy Fund each may purchase a put or call option (including
any straddles or spreads) only if the value of its premium, when aggregated with
the premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets.
For so long as required by applicable state securities regulation, Asset
Strategy Fund will only trade OTC options (a) if exchange-traded options are not
available, (b) there is an active OTC market in such options, and (c)
transactions are all through a broker-dealer with a minimum net worth of $20
million. This guideline may be modified by the Corporation's Board of Directors
without a shareholder vote.
For further limitations on certain Funds' use of options, see
"Limitations on the Use of Futures Contracts and Options Thereon."
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge.
Futures strategies also can be used to manage the average duration of a
Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average duration
of a Fund's fixed-income portfolio, the Fund may sell a futures contract or a
call option thereon, or purchase a put option on that futures contract. If
WRIMCO wishes to lengthen the average duration of a Fund's fixed-income
portfolio, the Fund may buy a futures contract or a call option thereon, or sell
a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
consisting of cash or U.S. Government Securities in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing a
call or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. Each Fund intends to enter into futures and options on futures only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a future or related option can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If a Fund were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Risks of Futures Contracts and Options Thereon.
The ordinary spreads between prices in the cash and futures markets
(including the options on futures market), due to differences in the natures of
those markets, are subject to the following factors, which may create
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors may close futures contracts through
offsetting transactions, which could distort the normal relationships between
the cash and futures markets. Second, the liquidity of the futures market
depends on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the futures market
may cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate, currency exchange rate or stock
market trends by WRIMCO may still not result in a successful transaction.
WRIMCO may be incorrect in its expectations as to the extent of various interest
rate, currency exchange rate or stock market movements or the time span within
which the movements take place.
Index Futures. The risk of imperfect correlation between movements in
the price of an index future and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold futures
contracts to hedge against decline in the market, the market may advance and the
value of the securities held in the portfolio may decline. If this occurred,
the Fund would lose money on the futures contract and also experience a decline
in value of its portfolio securities. However, while this could occur for a
very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Limitations on the Use of Futures Contracts and Options Thereon. The
Funds' use of futures is governed by the following guidelines, which can be
changed by the Corporation's Board of Directors without a shareholder vote. For
purposes of these guidelines, options on futures contracts and foreign currency
options traded on a commodities exchange are considered "related options:"
(1) To the extent that Asset Strategy Fund enters into futures contracts
or related options, in each case other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are "in-the-
money") will not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put.) This guideline does not limit to 5%
the percentage of the Fund's assets that are at risk in futures contracts and
related options transactions;
(2) To the extent that Total Return Fund, Growth Fund, Limited-Term
Bond Fund or Municipal Bond Fund enters into futures contracts or options on
futures contracts, in each case other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are "in-the-
money" at the time of purchase) will not exceed 5% of the liquidation value of
that Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into. (In general, a
call option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's assets that are at risk
in futures contracts and options on futures contracts;
(3) In instances involving the purchase by Total Return Fund, Growth Fund,
Limited-Term Bond Fund or Municipal Bond Fund of futures contracts or the
writing of related put options, an amount of cash, U.S. Government Securities or
other liquid, high-grade debt instruments, equal to the market value of the
futures positions held (or the Fund's exposure in the case of futures-related
options) less any initial margin deposits thereon held by the Fund's custodian,
will be deposited in a segregated account with the custodian to collateralize
the position and thereby ensure that the use of such futures contracts or
related options is unleveraged;
(4) The value of all futures contracts sold by Total Return Fund, Growth
Fund, Limited-Term Bond Fund or Municipal Bond Fund may not exceed the total
market value of its portfolio;
(5) Futures contracts and related options may not be purchased by Total
Return Fund, Growth Fund, Limited-Term Bond Fund or Municipal Bond Fund if
immediately thereafter more than 30% of its total assets would be so invested;
(6) International Growth Fund will not enter into financial futures
contracts and options thereon.
Asset Strategy Fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the Fund's
total assets would be hedged with futures and options under normal conditions;
or (b) purchase futures contracts or write put options if, as a result, the
Fund's total obligations upon settlement or exercise of purchased futures
contracts and written put options would exceed 25% of its total assets. These
limitations do not apply to options attached to or acquired or traded together
with their underlying securities, and do not apply to securities that
incorporate features similar to options.
For as long as required by applicable state securities regulation,
(1) the aggregate value of securities underlying put options written by
Asset Strategy Fund, determined as of the date the put options are written, will
not exceed 50% of the Fund's net assets,
(2) Asset Strategy Fund will only buy or sell (a) options on securities,
indices or futures contracts, or (b) futures contracts, in each case that are
offered through the facilities of a national securities association or that are
listed on a national securities or commodities exchange, other than the
permitted OTC options described under "Limitations on the Use of Options" above,
(3) the aggregate premiums paid on all options on securities, indices or
futures contracts purchased by Asset Strategy Fund that are held at any time
will not exceed 20% of the Fund's total net assets, and
(4) the aggregate margin deposits on all futures and options thereon held
at any time by Asset Strategy Fund will not exceed 5% of the Fund's total
assets.
Foreign Currency Hedging Strategies--Special Considerations. Certain of
the Funds may use options and futures contracts on foreign currencies, as
described above, and foreign currency forward contracts, as described below, to
attempt to hedge against movements in the values of the foreign currencies in
which a Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that a Fund owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.
The Funds might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Funds could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Asset Strategy Fund, International Growth
Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each of these Funds may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each of these Funds could also hedge the position by
selling another currency expected to perform similarly to the pound sterling,
for example, by entering into a forward contract to sell Deutsche Marks or
European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
These Funds also may use forward currency contracts for "cross-hedging."
Under this strategy, a Fund would increase its exposure to foreign currencies
that WRIMCO believes might rise in value relative to the U.S. dollar, or shift
its exposure to foreign currency fluctuations from one country to another. For
example, if a Fund owned securities denominated in a foreign currency and WRIMCO
believed that currency would decline relative to another currency, it might
enter into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or securities in a segregated
account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, WRIMCO believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of a Fund will be served.
Limitations on the Use of Forward Currency Contracts. Total Return Fund
and Growth Fund may enter into forward currency contracts or maintain a net
exposure to such contracts only if (1) the consummation of the contracts would
not obligate the Fund to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency
or (2) the Fund maintains cash, U.S. Government Securities or liquid, high-grade
debt securities in a segregated account in an amount not less than the value of
its total assets committed to the consummation of the contract and not covered
as provided in (1) above, as marked to market daily.
International Growth Fund may enter into forward currency contracts only
if, thereafter, it does not have more than 15% of the value of its assets
committed to the consummation of all of such contracts. International Growth
Fund will not enter into forward currency contracts or maintain a net exposure
to such contracts where the consummation of the forward contracts would
obligate International Growth Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.
Asset Strategy Fund does not currently intend to invest more than 5% of
its total assets in forward currency contracts.
Total Return Fund and Growth Fund each do not currently intend to invest
more than 10% of their respective total assets in forward currency contracts.
These limitations can be changed by the Corporation's Board of Directors
without a shareholder vote.
Combined Positions. A Fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of its overall position. For example, a
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Turnover. A Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps,
collars and floors, can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long- or short-term interest rates (in the U.S. or abroad), foreign
currency values, mortgage-backed security values, corporate borrowing rates, or
other factors such as security prices or inflation rates.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Corporation's Board of Directors. If a default occurs by the other party to
such transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash, U.S. Government Securities or other liquid high grade debt
obligations having an aggregate net asset value at least equal to the accrued
excess will be maintained in an account by the Funds' custodian that satisfies
the requirements of the 1940 Act. Each Fund will also establish and maintain
such segregated accounts with respect to its total obligations under any swaps
that are not entered into on a net basis and with respect to any caps or floors
that are written by the Fund. WRIMCO and the Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
Investment Restrictions
Certain of the Funds' investment restrictions are described in the
Prospectus and this SAI. The following are fundamental policies and together
with certain restrictions described in the Prospectus cannot be changed without
the approval of the holders of a majority of the outstanding shares of the
affected Fund. As defined in the 1940 Act, this means the lesser of the vote of
(a) 67% of the shares of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy, or (b) more than 50% of
the outstanding shares of the Fund. If a percentage restriction is adhered to
at the time of an investment or transaction, later changes in percentage
resulting from a change in value of portfolio securities or amount of total
assets will not be considered a violation of the restriction.
(i) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund and International Growth Fund may not buy real estate, any
nonliquid interests in real estate investment trusts or interests in
real estate limited partnerships; however, each of these Funds may buy
obligations or instruments that it otherwise may buy even though the
issuer invests in real estate or interests in real estate. Asset
Strategy Fund may not invest in real estate limited partnerships or
purchase or sell real estate unless acquired as a result of ownership
of securities (but this shall not prevent this Fund from purchasing and
selling securities issued by companies or other entities or investment
vehicles that deal in real estate or interests therein, nor shall this
prevent this Fund from purchasing interests in pools of real estate
mortgage loans).
(ii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund and International Growth Fund may not acquire shares of an
investment company that issues redeemable securities. Total Return
Fund, Growth Fund and International Growth Fund may buy shares of an
investment company that does not issue redeemable securities if the
Fund does so in a regular transaction in the open market and in
compliance with the requirements of the 1940 Act. Notwithstanding the
foregoing, each of these Funds may also acquire investment company
shares as part of a merger, consolidation or other reorganization.
(iii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund and International Growth Fund may not lend money or other
assets, other than through certain limited types of loans; however,
subject to the restrictions stated in this SAI and in the Prospectus
regarding the types of securities each of these Funds may buy, each of
these Funds may buy debt securities that have been sold to the public
and other obligations customarily acquired by institutional investors
and, except Municipal Bond Fund, may lend its portfolio securities and
enter into repurchase agreements. Asset Strategy Fund may not make
loans, except (a) by lending portfolio securities provided that no
securities loan will be made if, as a result thereof, more than 10% of
this Fund's total assets (taken at current value) would be lent to
another party; (b) through the purchase of a portion of an issue of
debt securities in accordance with its investment objective, policies,
and limitations; and (c) by engaging in repurchase agreements with
respect to portfolio securities.
(iv) No Fund may invest for the purpose of exercising control or management
of another issuer.
(v) No Fund may buy or continue to hold securities of an issuer if, to the
knowledge of the Corporation, the directors and officers of the
Corporation and of WRIMCO (each owning beneficially 0.5% of the
securities of such issuer) own in the aggregate more than 5% of that
issuer's securities.
(vi) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not sell securities short, buy
securities on margin or engage in arbitrage transactions; however, each
of these Funds may make margin deposits in connection with its use of
any financial instrument permitted by its policies. Also, as
applicable, each of these Funds may enter into escrow and collateral
arrangements in connection with options, futures contracts and other
financial instruments. Asset Strategy Fund may not sell securities
short, provided that transactions in futures contracts, options and
other financial instruments are not deemed to constitute short sales.
Asset Strategy Fund may not purchase securities on margin, except that
this Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that this Fund may make initial
and variation margin payments in connection with transactions in
futures contracts, options and other financial instruments.
(vii) No Fund may engage in the underwriting of securities of other issuers,
except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under
Federal securities laws.
(viii) No Fund may invest in a security if, as a result, it would own more
than 10% of the outstanding voting securities of an issuer, or if more
than 5% of the Fund's total assets would be invested in securities of
that issuer, provided that U.S. Government Securities are not subject
to this limitation and up to 25% of the Fund's total assets may be
invested without regard to these restrictions.
(ix) No Fund may buy a security if, as a result, 25% or more of the Fund's
total assets would then be invested in securities of issuers having
their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S.
Government Securities.
(x) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund and International Growth Fund may not purchase warrants,
except Growth Fund and International Growth Fund may purchase warrants
to the extent described above. See "Warrants and Rights."
(xi) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not buy or sell commodities or
commodity contracts except to the extent that instruments in which
these Funds may invest for hedging, income enhancing or other purposes
as such purposes may be permitted by the CFTC and the Fund's policies,
are considered to be commodities or commodity contracts. Asset
Strategy Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities (but this shall not
prevent this Fund from purchasing and selling currencies, futures
contracts, options, forward currency contracts or other financial
instruments).
(xii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not issue senior securities.
Asset Strategy Fund may not issue bonds or any other class of
securities preferred over shares of the Fund in respect of the Fund's
assets or earnings, provided that this Fund may issue additional series
and classes of shares in accordance with its Articles of Incorporation.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not borrow money, except that
these Funds may borrow money (and pledge assets in connection
therewith) from banks for temporary, extraordinary or emergency
purposes but only up to 5% of their respective assets. Asset Strategy
Fund may not borrow money, except that this Fund may borrow money for
emergency or extraordinary purposes (not for leveraging or investment)
in an amount not exceeding 33 1/3% of the value of its total assets
(less liabilities other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of Asset Strategy Fund's total assets by
reason of a decline in net assets will be reduced within three days to
the extent necessary to comply with the 33 1/3% limitation. For
purposes of this limitation, "three days" means three days, exclusive
of Sundays and holidays.
(xiii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not invest in interests in oil,
gas or mineral leases or mineral development programs, including oil
and gas limited partnerships.
For purposes of applying restriction (viii) there may be a question as
to who is the "issuer" of municipal bonds. For example, municipal bonds may be
created by a particular government but be backed only by the assets and revenues
of a subdivision of that government such as an agency, instrumentality,
authority or other subdivision. In such case, such subdivision would be
considered the "issuer" for the purposes of the 5% restriction. In the case of
industrial development bonds, the nongovernmental user of facilities financed by
them is also considered as a separate "issuer." This restriction does not apply
to U.S. Government Securities. The method of determining who is an "issuer" may
be changed without shareholder vote. In applying this 5% restriction, the same
standards apply as set forth above for determining who is an "issuer;" however,
it also considers for the purpose of this 5% restriction that a guarantee by a
government or other entity of a municipal bond is a separate security that would
be given a value and included in the 5% restriction if the value of all
municipal bonds created by the government or entity and owned by a Fund should
exceed 10% of the value of its total assets.
The following investment limitations of Asset Strategy Fund are not
fundamental and may be changed by the Board of Directors without shareholder
approval:
(1) Asset Strategy Fund may borrow money only from a bank. Asset Strategy
Fund will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding.
(2) Asset Strategy Fund does not currently intend to purchase any security
if, as a result, more than 15% of its net assets would be invested in illiquid
investments.
(3) Asset Strategy Fund does not currently intend to lend assets other
than securities to other parties, except by acquiring loans, loan
participations, or other forms of direct debt instruments. (This limitation
does not apply to purchases of debt securities or to repurchase agreements.)
(4) Asset Strategy Fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid and if, as a result
of such purchase, the Fund does not have more than 10% of its total assets
invested in such securities, or (b) purchase or retain securities issued by
other open-end investment companies. Limitations (a) and (b) do not apply to
securities received as dividends, through offers of exchange, or as a result of
a reorganization, consolidation, or merger. However, in the event that the Fund
purchases or retains securities issued by any other open-end investment company,
WRIMCO will waive its advisory fee on that portion of the Fund's assets invested
in such securities and the Fund will only purchase securities of no-load, open-
end investment companies.
(5) Asset Strategy Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivision thereof) if, as a result, more
than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation. This restriction does not apply to any obligation
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or to CMOs, other mortgage-related securities, asset-backed securities or
indexed securities.
(6) Asset Strategy Fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of its net assets.
Included in that amount, but not to exceed 2% of its net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by Asset Strategy Fund in units or attached to
securities are not subject to these restrictions.
(7) Asset Strategy Fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(8) Asset Strategy Fund does not currently intend to invest in non-
mortgage asset-backed securities.
For the Funds' limitations on futures and options transactions, see the
sections entitled "Limitations on the Use of Futures Contracts and Options
Thereon" and "Limitations on the Use of Options" under "Options, Futures and
Other Strategies."
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Fund's turnover rate may vary
greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for the fiscal years ended March 31, 1995 and
1994 for each of the Funds then in existence were as follows:
1995 1994
----- ----
Total Return Fund 16.60% 17.31%
Growth Fund 56.30 69.12%
Limited-Term Bond Fund 29.20 25.90%
Municipal Bond Fund 56.92 18.93%
International Growth Fund* 13.33 34.90%
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
Asset Strategy Fund cannot precisely predict what its portfolio turnover
rate will be, but it is anticipated that its annual turnover rate for the common
stock portion of its portfolio will not exceed 200% and that the annual turnover
rate for the other portion of its portfolio will not exceed 200%.
A high turnover rate will increase transaction costs and commission costs
that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Funds and provide investment advice to the
Funds. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. (the
"Distributor") is the Corporation's principal underwriter and distributor.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to
enter into a separate agreement for transfer agency services (the "Shareholder
Servicing Agreement") and a separate agreement for accounting services (the
"Accounting Services Agreement") with the Corporation. The Management Agreement
contains detailed provisions as to the matters to be considered by the
Corporation's Board of Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992, when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. since they each
commenced operations in February 1993, and United Asset Strategy Fund, Inc.
since it commenced operations in March 1995. Waddell & Reed, Inc. serves as
principal underwriter for the Funds, the investment companies in the United
Group of Mutual Funds and serves as distributor for TMK/United Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
the Distributor, the Agent performs shareholder servicing functions, including
the maintenance of shareholder accounts, the issuance, transfer and redemption
of shares, distribution of dividends and payment of redemptions, the furnishing
of related information to the Corporation and handling of shareholder inquiries.
A new Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides the Corporation with bookkeeping
and accounting services and assistance, including maintenance of the
Corporation's records, pricing of the Corporation's shares, and preparation of
prospectuses for existing shareholders, proxy statements and certain reports. A
new Accounting Services Agreement, or amendments to an existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Payments for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus. The management
fees paid to WRIMCO during the fiscal years ended March 31, 1995, 1994 and 1993
for each of the Funds then in existence were as follows:
1995 1994 1993*
---- ----- ----
Total Return Fund $599,703 $255,556 $21,358
Growth Fund 537,667 185,715 17,277
Limited-Term Bond Fund 64,948 52,456 10,247
Municipal Bond Fund 140,752 95,328 12,598
International Growth Fund** 70,373 62,024 19,695
*For the period from 9/21/92, the date of initial public offering, to
3/31/93.
**International Growth Fund (formerly Global Income Fund) changed its name,
investment objective and management fee effective April 20, 1995.
For purposes of calculating the daily fee the Corporation does not include
money owed to it by the Distributor for shares which it has sold but not yet
paid to the Corporation. The Corporation accrues and pays this fee daily.
The Management Agreement requires WRIMCO to reduce or refund to a Fund the
amount of those of the Fund's operating and management expenses which exceed the
lowest of the expense limitations of any state in which the Fund's shares are
qualified for sale.
Under the Shareholder Servicing Agreement, with respect to Class B
shares, each Fund pays the Agent a monthly fee of $1.0208 for each shareholder
account that was in existence at any time during the prior month, plus $0.30 for
each account on which a dividend or distribution, of cash or shares, had a
record date in that month. For Class Y shares, each Fund pays the Agent a
monthly fee equal to one-twelfth of .15 of 1% of the average daily net assets of
that Class for the preceding month. Each Fund also pays certain out-of-pocket
expenses of the Agent, including long distance telephone communications costs;
microfilm and storage costs for certain documents; forms, printing and mailing
costs; and costs of legal and special services not provided by the Distributor,
WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent during the fiscal years ended March 31, 1995,
1994 and 1993 for each of the Funds then in existence were as follows:
1995 1994 1993*
---- ----- ----
Total Return Fund $30,833 $20,000 $833
Growth Fund 28,333 13,333 ---
Limited-Term Bond Fund 10,000 4,167 ---
Municipal Bond Fund 12,500 10,833 ---
International Growth Fund** 10,000 5,833 ---
*For the period 9/21/92, the date of initial public offering, to 3/31/93.
**International Growth Fund (formerly Global Income Fund) changed its name
and investment objective effective April 20, 1995.
Because the Corporation pays a management fee for investment supervision
and an accounting services fee for accounting services as discussed above,
WRIMCO and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Corporation under the Shareholder Servicing
Agreement are described above. The Distributor and its affiliates pay the
Corporation's Directors and officers who are affiliated with the Distributor and
its affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
The Corporation pays all of its other expenses. These include, for each
Fund, the costs of materials sent to shareholders, audit and outside legal fees,
taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Distribution Arrangement
The Distributor acts as principal underwriter and distributor of the
Corporation's shares pursuant to an underwriting agreement (the "Underwriting
Agreement"). The Underwriting Agreement requires the Distributor to use its
best efforts to sell the shares of the Corporation but is not exclusive, and
permits and recognizes that the Distributor also distributes shares of other
investment companies and other securities. Shares are sold on a continuous
basis.
Under a Distribution and Service Plan for the Class B shares (the "Class
B Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act,
the Corporation, with respect to each Fund, pays the Distributor daily a
distribution fee not to exceed, on an annual basis, 0.75% of the particular
Fund's Class B net asset value and a service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class B net asset value. Under a
Distribution and Service Plan for Class Y shares adopted by the Corporation
pursuant to Rule 12b-1, with respect to each Fund, the Corporation pays the
Distributor daily a distribution and/or service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class Y net asset value.
The Distributor offers the Corporation's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
contemplated, to make distribution of shares also through other broker-dealers.
In distributing shares through its sales force, the Distributor will pay
commissions and incentives to the sales force at or about the time of sale and
will incur other expenses including for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Corporation's shares.
The Class B Plan, the Class Y Plan and the Underwriting Agreement contemplate
that the Distributor may be compensated for these distribution efforts through
the distribution fee. The sales force may be paid continuing compensation based
on the value of the shares held by shareholders to whom the member of the sales
force is assigned to provide personal services, and the Distributor or its
subsidiary, Waddell & Reed Services Company, may also provide services to
shareholders through telephonic means and written communications. For the
fiscal year ended March 31, 1995, the Corporation paid (or accrued) the
following amounts to the Distributor as distribution fees and service fees under
the Class B Plan for each of the Funds then in existence: Total Return Fund -
$638,040 and $197,508; Growth Fund - $501,677 and $154,029; Limited-Term Bond
Fund - $87,444 and $24,936; Municipal Bond Fund - $189,123 and $54,969; and
International Growth Fund (formerly Global Income Fund) - $80,153 and $12,428.
The distribution fees were paid to compensate the Distributor for its expenses
relating to sales force compensation, providing prospectuses and sales
literature to prospective investors, advertising, sales processing, field office
expenses and home office sales management in connection with the distribution of
Class B shares of a Fund. The service fees were paid to compensate the
Distributor for providing personal services to the particular Fund's Class B
shareholders and for the maintenance of Class B accounts.
The Class B Plan, the Class Y Plan and the Underwriting Agreement were
approved by the Corporation's Board of Directors, including the Directors who
are not interested persons of the Corporation or of the Distributor and who have
no direct or indirect financial interest in the operations of the Plan or any
agreement referred to in the Plan (hereafter the "Plan Directors"). Each Plan
was also approved as to each Fund by the Distributor as the sole shareholder of
the affected shares of each of the Funds at the time. Each Plan will be
submitted for approval by the shareholders of the applicable class of each Fund
at the first meeting of such shareholders following the commencement of the
public distribution of the Corporation's shares of the applicable class.
Among other things, the Plan for each class provides that (i) the
Distributor will submit to the Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendments thereto are approved by the Directors including the Plan Directors
acting in person at a meeting called for that purpose, (iii) payments by the
Corporation under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of that
class of each affected Fund, and (iv) while the Plan remains in effect, the
selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
For the Corporation's fiscal year ended March 31, 1995, the Distributor
earned deferred sales charges from each of the Funds with respect to Class B
shares then in existence as follows: Total Return Fund - $146,112; Growth Fund
- - $99,036; Limited-Term Bond Fund - $46,384; Municipal Bond Fund - $61,925; and
International Growth Fund (formerly Global Income Fund) - $13,960.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., Kansas City, Missouri. In
general, the custodian is responsible for holding each Fund's cash and
securities. The Funds may place and maintain foreign securities and cash with a
foreign custodian in accordance with Rule 17f-5 of the 1940 Act. Price
Waterhouse LLP, Kansas City, Missouri, the Funds' independent accountants,
audits the Corporation's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each Class of the shares of a Fund is the value
of the assets of that Class, less the liabilities of that Class, divided by the
total number of shares outstanding of that Class.
The offering price of a Class B or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after the
Distributor receives and accepts your order at its principal business office at
the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
The Distributor need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value per share is ordinarily computed once on each day
that the NYSE is open for trading as of the later of the close of the regular
session of the NYSE or the close of the regular session of any domestic
securities or commodities exchange on which an option or future held by a Fund
is traded. The NYSE annually announces the days on which it will not be open
for trading. The most recent announcement indicates that the NYSE will not be
open on the following days: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, it is possible that the NYSE may close on other days. The net asset
value changes every business day, since the value of the assets and the number
of shares outstanding changes every business day.
The securities in the portfolio of each Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations), which provides information on bid and asked prices quoted
by major dealers in such stocks. Bonds, other than convertible bonds, are
generally valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days when there
is no sale reported. Short-term debt securities are valued at amortized cost,
which approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
by or under the direction of the Board of Directors.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of a Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period, the
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of a Fund conducted on a spot (i.e., cash) basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
Options and futures contracts purchased and held by a Fund are valued at
the last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for option trading
on national securities exchanges is 4:10 P.M. Eastern time and the close of the
regular session for commodities exchanges is 4:15 P.M. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by a Fund will be either the closing price
of that contract or the bid price. Conversely, the value of a futures contract
sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium
received is included in the Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" to reflect the current market value of the
put or call. If the call a Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
the Fund received. If a Fund exercised a call it purchased, the amount paid to
purchase the related investment is increased by the amount of the premium paid.
If a put written by a Fund is exercised, the amount that the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If a Fund exercises a put it purchased, the amount the Fund receives
from the sale of the related investment is reduced by the amount of the premium
it paid. If a put or call written by a Fund expires, it has a gain in the
amount of the premium; if a Fund enters into a closing purchase transaction, it
will have a gain or loss depending on whether the premium was more or less than
the cost of the closing transaction.
Minimum Initial and Subsequent Investments
For Class B shares, initial investments must be at least $1,000 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to exchanges of shares from one Fund to another Fund. A $50 minimum
initial investment pertains to purchases for certain retirement plan accounts
and to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, the Distributor, their affiliates or certain
retirement plan accounts. Except with respect to certain exchanges and
automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount.
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $1 million. There is no initial investment
minimum for other Class Y investors.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class B shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). To qualify for the
Service, you must have invested at least $10,000 in Class B shares which you
still own of any of the Funds, or corresponding shares of United Cash
Management, Inc., a fund in the United Group of Mutual Funds, or you must own
shares having a value of at least $10,000.
The maximum amount of the withdrawal for monthly, quarterly, semiannual and
annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50.
To start the Service, you must fill out a form (available from the
Distributor), advising the Distributor how you want your shares redeemed to make
the payments. You have three choices within the above stated maximums:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to a
percentage of the value of the shares in your account; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares ordinarily are redeemed on the 20th day of the month in which the
payment is to be made (or on the prior business day if the 20th is not a
business day). Payments are usually made within five days of the redemption.
Retirement Plan Accounts may be subject to a fee imposed by the plan
custodian for use of their service.
The dividends and distributions on shares of a Fund that you have made
available for the Service are paid in additional Class B shares of that Fund.
All payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of Class B shares you own will decrease. When all of
the shares in your account are redeemed, you will not receive any further
payments. Thus, the payments are not an annuity or income or return on your
investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed. You can change to any of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. Subject to the deferred sales
charge, you can at any time redeem part or all of the shares of a Fund in your
account; if you redeem all of the shares, the Service is terminated. The Fund
can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchange Privilege
Class B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for Class
B shares of another Fund of the Corporation, or for Class B shares of United
Cash Management, Inc., without charge.
The redemption of a Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class A shares of United Cash
Management, Inc., a fund in the United Group of Mutual Funds for which WRIMCO
also acts as investment manager, automatically redeemed each month and invested
into a Fund. The shares of United Cash Management, Inc. which you designate
must be worth at least $100, which may be allocated among different Funds so
long as each Fund receives a value of at least $25. Minimum initial investment
and minimum balance requirements apply to such service. These exchange and
other rights can in most instances be eliminated or modified at any time, upon
notice in certain circumstances, and any related request may not be accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
Fund of the Corporation.
General Exchange Information
The exchange will be made at the net asset values next determined after
receipt of your written request in good order by the Corporation. When you
exchange shares, the total shares you receive will have the same aggregate net
asset value as the total shares you exchange.
These exchange rights may be eliminated or modified at any time by the
Corporation, upon notice in certain circumstances.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers prototype documents for the following
retirement plans. All of these plans involve investment in shares of one or
more of the Funds.
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from the Distributor. These plans may involve complex tax questions
as to premature distributions and other matters. Investors should consult their
tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures and deferred
sales charges. Redemption payments are made within seven days unless delayed
because of emergency conditions determined by the SEC, when the NYSE is closed
other than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions redemptions may
be made in portfolio securities. Payment for redemptions of shares of the
Corporation may be made in portfolio securities when the Corporation's Board of
Directors determines that conditions exist making cash payments undesirable.
Redemptions made in securities will be made only in readily marketable
securities and the shareholder will incur commission or other transaction
charges in order to convert these securities into cash. Securities used for
payment of redemptions are valued at the value used in figuring net asset value.
The Corporation, however, has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder.
As stated in the Prospectus, a deferred sales charge is inapplicable in a
variety of circumstances. The deferred sales charge is the subject of an
effective order of exemption issued by the staff of the SEC. For purposes of
determining application of the deferred sales charge, "employees" include
retired employees and "directors" includes retired directors. A retired
employee is an individual separated from service from the Distributor or any of
its affiliated companies with a vested interest in any employee benefit plan
sponsored by the Distributor or any of its affiliated companies. "Account
representatives" includes retired account representatives. A "retired account
representative" is any account representative who was, at the time of separation
from service from the Distributor, a Senior Account Representative. A custodian
under the Uniform Gifts (or Transfers) to Minors Act purchasing for the child of
any employee or account representative may redeem shares without a deferred
sales charge whether or not the custodian is an eligible purchaser.
Reinvestment Privilege
The Prospectus for Class B shares discusses the reinvestment privilege
for Class B shares under which you may reinvest in any one or more of the Funds
all or part of any amount of Class B shares you redeemed and have the
corresponding amount of the deferred sales charge, if any, which you paid
restored to your account by adding the amount of that charge to the amount you
are reinvesting. If Class B shares of a Fund are then being offered, you can
put all or part of your redemption payment back into the Class B shares of that
Fund at the net asset value next determined after you have returned the amount.
Your written request to do this must be received within 30 days after your
redemption. You can do this only once as to Class B shares of that Fund. For
purposes of determining future deferred sales charges, the reinvestment will be
treated as a new investment. You do not use up this privilege by redeeming
Class B shares to invest the proceeds at net asset value in a Keogh plan or an
IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer of the Corporation is given below. Each of the persons
listed through and including Mr. Wright is a member of the Corporation's Board
of Directors. The other persons are officers but not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes each
of the registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc., TMK/United Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. Each of the
Corporation's Directors is also a Director of each of the funds in the Fund
Complex and each of the Corporation's officers is also an officer of one or more
of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc., formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch Corp.;
formerly, Senior Vice President and Director of Marketing Services, The Meyer
Group of Management Consultants; formerly, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
Suite 260
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; formerly, President of Gilliland &
Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
JAMES B. JUDD
No. 1 Ward Parkway
Suite 138
Kansas City, Missouri 64112
Retired; formerly, partner, KPMG Peat Marwick. A petition relating to Mr.
Judd's property was filed under the Federal bankruptcy laws and is now final.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence (Mr. Morgan retired as
Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64110
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
LESLIE S. WRIGHT
2302 Brookshire Place
Birmingham, Alabama 35213
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
John M. Holliday
Vice President of the Corporation and nine other funds in the Fund Complex;
Senior Vice President of WRIMCO and of Waddell & Reed Asset Management Company;
formerly, Senior Vice President of Waddell & Reed, Inc.
Mark G. Seferovich
Vice President of the Corporation and two other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
W. Patrick Sterner
Vice President of the Corporation and one other fund in the Fund Complex;
Vice President of WRIMCO; Vice President of Waddell & Reed Asset Management
Company; formerly, Chief Investment Officer of The Merchants Bank.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Senior Vice President of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
James Wineland
Vice President of the Corporation and three other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed,
Inc.
Mark Yockey
Vice President of the Corporation and two other funds in the Fund Complex.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Corporation's Directors may be
deemed to be "interested persons" (as defined in the 1940 Act) of the
Distributor or of WRIMCO and, as such, also of the Corporation. The Directors
who may be deemed to be "interested persons" are indicated as such by an
asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a Director may elect after resignation from the Board
of Directors provided the Director has attained the age of 75 and has served as
a Director of the Corporation for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no authority
or responsibility with respect to management of the Corporation. Currently, no
person serves as Director Emeritus.
The Corporation, the funds in the United Group (with the exception of
United Asset Strategy Fund, Inc.) and TMK/United Funds, Inc. pay to each
Director a total of $40,000 per year, plus $1,000 for each meeting of the Board
of Directors attended (prior to January 1, 1995, the fee was $500 for each
meeting of the Board of Directors attended) and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the Corporation, the funds in the
United Group (with the exception of United Asset Strategy Fund, Inc.) and
TMK/United Funds, Inc. based on their relative size. During the Corporation's
fiscal year ended March 31, 1995, the Corporation's Directors received the
following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 641 0 43,000
Dodds I. Buchanan 641 0 43,000
Jay B. Dillingham 641 0 43,000
John F. Hayes 641 0 43,000
Glendon E. Johnson 641 0 43,000
William T. Morgan 641 0 43,000
Doyle Patterson 641 0 43,000
Frederick Vogel III 641 0 43,000
Paul S. Wise 641 0 43,000
Leslie S. Wright 621 0 41,500
Ms. Graves, Ms. Schwartz and Mr. Judd were elected as Directors on July
12, 1995. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of November 30, 1995, all of the Corporation's Directors and officers
as a group owned less than 1% of the outstanding shares of the Corporation. As
of such date, no person owned of record or was known by the Corporation to own
beneficially 5% or more of the Corporation's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are two (three, in the case of certain Funds) sources for the
payments a Fund makes to you as a shareholder of a class of shares of a Fund,
other than payments when you redeem your shares. The first source is a Fund's
net investment income, which is derived from the dividends, interest and earned
discount on the securities it holds, less expenses (which will vary by class).
The second source is realized capital gains, which are derived from the proceeds
received from the sale of securities at a price higher than a Fund's tax basis
(usually cost) in such securities; these gains can be either long-term or short-
term, depending on how long a Fund has owned the securities before it sells
them. The third source (in the case of Total Return Fund, Growth Fund,
International Growth Fund and Asset Strategy Fund)is net realized gains from
foreign currency transactions. The payments made to shareholders from net
investment income, net short-term capital gains, and net realized gains from
certain foreign currency transactions are called dividends. Payments, if any,
from long-term capital gains are called distributions.
Each Fund pays distributions only if it has net realized capital gains (the
excess of net long-term capital gains over net short-term capital losses). It
may or may not have such gains, depending on whether securities are sold and at
what price. If a Fund has net realized capital gains, it will pay distributions
once each year, in the latter part of the fourth calendar quarter. Even if a
Fund has net capital gains for a year, it does not pay the gains out if it has
applicable prior year losses to offset the gains.
Choices you Have on your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
a Fund of the same class as that with respect to which they were paid. All
reinvestments are at net asset value without any sales charge. The net asset
value used for this purpose is that computed as of the payment date for the
dividend or distribution, although this could be changed by the Board of
Directors.
Even if you get dividends and distributions on Class B shares in cash, you
can thereafter reinvest them (or distributions only) in Class B shares of a Fund
at net asset value (i.e., no sales charge) next determined after receipt by the
Distributor of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund (each Fund being treated as a separate
entity for these purposes) must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting generally
of taxable net investment income, net short-term capital gains and, for certain
Funds, net gains from certain foreign currency transactions) plus, in the case
of Municipal Bond Fund, its net interest income excludable from gross income
under Section 103(a) of the Code ("Distribution Requirement"), and must meet
several additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or futures (other than those on foreign currencies), or
foreign currencies (or options, futures or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government Securities, securities of other RICs and other securities that are
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government Securities or
the securities of other RICs) of any one issuer.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gains net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to make sufficient distributions each
year to avoid imposition of the Excise Tax. The Code permits the Fund to defer
into the next calendar year net capital losses incurred between each November 1
and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
International Growth Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, that Fund will be eligible to,
and may, file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by it. Pursuant
to any such election, International Growth Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by that Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
International Growth Fund will report to its shareholders shortly after each
taxable year their respective shares of that Fund's income from sources within,
and taxes paid to, foreign countries and U.S. possessions if it makes this
election.
Each of International Growth Fund, Asset Strategy Fund, Total Return Fund
and Growth Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
would have to be distributed to satisfy the Distribution Requirement and to
avoid imposition of the Excise Tax -- even if those earnings and gain were not
received by the Fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating the
provision described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
Proposed regulations have been published pursuant to which open-end RICs,
such as the Funds, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of such a PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its
shareholders.
Income from Options, Futures and Currencies
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures and entering into forward contracts, involves
complex rules that will determine for income tax purposes the character and
timing of recognition of the gains and losses a Fund realizes in connection
therewith. Income from foreign currencies (except certain gains therefrom that
may be excluded by future regulations), and income from transactions in options,
futures and forward contracts derived by a Fund with respect to its business of
investing in securities or foreign currencies, will qualify as permissible
income under the Income Requirement. However, income from the disposition of
options and futures (other than those on foreign currencies) will be subject to
the Short-Short Limitation if they are held for less than three months. Income
from the disposition of foreign currencies, and options, futures and forward
contracts thereon, that are not directly related to a Fund's principal business
of investing in securities (or options and futures with respect to securities)
also will be subject to the Short-Short Limitation if they are held for less
than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of each Fund's hedging transactions. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures and forward contracts beyond the time
when it otherwise would be advantageous to do so, in order for the Fund to
qualify or continue to qualify as a RIC.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gains or losses based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by a Fund lapses without being exercised,
the premium it receives also will be a short-term gain. If such an option is
exercised and thus the Fund sells the securities subject to the option, the
premium the Fund receives will be added to the exercise price to determine the
gain or loss on the sale. A Fund will not write so many options that it could
fail to qualify or continue to qualify as a RIC.
Certain options and futures in which the Funds may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of its
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance are
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Funds are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
original issue discount. As the holder of those securities, a Fund must include
in its income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Similarly, a Fund must include in its gross income
securities it receives as "interest" on payment-in-kind securities. Because
each Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
in order to satisfy the Distribution Requirement and to avoid imposition of the
Excise Tax, a Fund may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from a Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. A Fund may realize
capital gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gains. In addition, any
such gains may be realized on the disposition of securities held for less than
three months. Because of the Short-Short Limitation, any such gains would
reduce a Fund's ability to sell other securities, or certain options, futures or
forward contracts, held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.
Municipal Bond Fund
The aggregate dividends excludable from the gross income of a Municipal
Bond Fund shareholder may not exceed the Fund's net tax-exempt income. If the
Fund's shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends received
on those shares. Tax-exempt interest attributable to certain private activity
bonds ("PABs") (including a proportionate part of the exempt-interest dividends
paid by the Fund attributable thereto) is subject to the alternative minimum
tax. Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to that tax without regard to whether the Fund's tax-exempt
interest was attributable to those PABs.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds should consult their tax advisers before purchasing shares of the Fund
because, for users of certain of these facilities, the interest on such bonds is
not exempt from Federal income tax. For these purposes, the term "substantial
user" is defined generally to include a "non-exempt person" who regularly uses
in trade or business a part of a facility financed from the proceeds of PABs or
industrial development bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the income
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of its earnings and profits. Moreover, if the Fund realizes capital
gains as a result of market transactions, any distribution of those gains will
be taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions, and property and casualty
insurance companies. A shareholder falling into any such category should
consult its tax adviser concerning its investment in shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange for the purchase and sale of securities for the portfolio of each
Fund. With respect to Limited-Term Bond Fund and Municipal Bond Fund, many
purchases are made directly from issuers or from underwriters, dealers or banks.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriter. Purchases from dealers will include the spread
between the bid and the asked prices. Otherwise, transactions in securities
other than those for which an exchange is the primary market are generally done
with dealers acting as principals or market makers. Brokerage commissions are
paid primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution can be
obtained.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on relevant
factors, will implement the policy of the Fund to achieve "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent with
the interests and policies of the Fund. Subject to review by the Board of
Directors, such policies include the selection of brokers which provide
execution and/or research services and or other services, including pricing or
quotation services directly or through others ("brokerage services") considered
by WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Such brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other funds managed by WRIMCO
and its affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Corporation and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist
WRIMCO in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in a
Fund's portfolio or being considered for purchase.
In placing transactions for a portfolio, WRIMCO may consider sales of
shares of each portfolio of the Corporation and other funds managed by WRIMCO
and its affiliates as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO intends to allocate brokerage on the basis of this factor,
among others, only if the sale is $2 million or more. This results in the
consideration only of sales which by their nature would not ordinarily be made
by the Distributor's direct sales force and is done in order to prevent the
direct sales force from being disadvantaged by the fact that it cannot
participate in the Corporation's brokerage.
The table below sets forth the brokerage commissions paid by each of the
Funds then in existence during the fiscal years ended March 31, 1995, 1994 and
1993. These figures do not include principal transactions or spreads or
concessions on principal transactions, i.e., those in which a Fund sells
securities to a broker-dealer firm or buys from a broker-dealer firm securities
owned by it.
1995 1994 1993*
---- ----- -----
Total Return Fund $ 84,002 $70,780 $16,390
Growth Fund 44,809 26,876 1,525
Limited-Term Bond Fund --- --- ---
Municipal Bond Fund --- --- ---
International Growth Fund** --- --- ---
-------- ------- -------
Total $128,811 $97,656 $17,915
======== ======= =======
*For the period from 9/21/92, the date of the initial public offering, to
3/31/95.
**Formerly Global Income Fund.
The next table shows for each of the Funds the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution and the brokerage commissions paid during the
fiscal year ended March 31, 1995 for each of the Funds then in existence. These
transactions were allocated to these broker-dealers by the internal allocation
procedures described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Total Return Fund ................. $36,432,287 $58,077
Growth Fund ....................... 14,866,446 27,784
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
International Growth Fund* ........ --- ---
---------- -------
Total .......................... $51,298,733 $85,861
========== =======
*Formerly Global Income Fund
As of March 31, 1995, Waddell & Reed Growth Fund owned Merrill Lynch & Co.,
Inc. securities in the aggregate amount of $2,999,003. Merrill Lynch & Co.,
Inc. is a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The individual who manages each of the respective Funds may manage other
advisory accounts with similar investment objectives. It can be anticipated
that WRIMCO will frequently place concurrent orders for all or most accounts for
which WRIMCO has responsibility. Transactions effected pursuant to such
combined orders are averaged as to price and allocated in accordance with the
purchase or sale orders actually placed for each fund or advisory account. One
or more of the Funds and one or more of the funds in the United Group,
TMK/United Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. or accounts over which Waddell & Reed Asset
Management Company exercises investment discretion frequently buy or sell the
same securities at the same time. If this happens, the amount of each purchase
or sale is divided. This is done on the basis of the amount of securities each
fund or account wanted to buy or sell. Sharing in large transactions could
affect the price a Fund pays or receives or the amount it buys or sells.
However, sometimes a better negotiated commission is available.
OTHER INFORMATION
General
The Corporation was organized on January 29, 1992. The name of
International Growth Fund (formerly Global Income Fund) was changed effective
April 20, 1995.
The Shares of the Funds
The shares of each of the Funds represents an interest in that Fund's
securities and other assets and in its profits or losses. Each fractional share
of a Class has the same rights, in proportion, as a full share of that Class.
Each Fund offers two Classes of its shares: Class B and Class Y. Prior to
December 2, 1995, each Fund offered only one Class of shares to the public.
Shares outstanding on that date were designated as Class B shares. Each Class
of a Fund represents an interest in the same assets of the Fund and differ as
follows: each Class of shares has exclusive voting rights on matters pertaining
to matters appropriately limited to that Class; Class B shares are subject to a
contingent deferred sales charge; Class Y shares are subject to an ongoing
distribution and service fee that differs in amount from that of the Class B
shares; each Class may bear differing amounts of certain Class-specific
expenses; and each Class has a separate exchange privilege. The Funds do not
anticipate that there will be any conflicts between the interests of holders of
the different Classes of shares of the same Fund by virtue of those Classes. On
an ongoing basis, the Board of Directors will consider whether any such conflict
exists and, if so, take appropriate action. Each share of a Fund is entitled to
equal voting, dividend, liquidation and redemption rights, except that due to
the differing expenses borne by the two Classes, dividends and liquidation
proceeds of Class B shares are expected to be lower than for Class Y shares of
the same Fund.
Each share of each Fund (regardless of Class) is entitled to one vote. On
certain matters such as the election of Directors, all shares of the six Funds
vote together as a single class. On other matters affecting a particular Fund,
the shares of that Fund vote together as a separate class, such as with respect
to a change in an investment restriction of a particular Fund, except that as to
matters for which a separate vote of a Class is required by the 1940 Act or
which affects the interests of one or more particular Classes, the affected
shareholders vote as a separate Class. In voting on a Management Agreement,
approval by the shareholders of a Fund is effective as to that Fund whether or
not enough votes are received from the shareholders of the other Funds to
approve the Management Agreement for the other Funds.
Initial Investment and Organizational Expenses
On April 24, 1992, the Distributor purchased for investment 2,000 shares of
each Fund at a net asset value of $10.00 per share.
The Corporation's organizational expenses in the amount of $162,960 were
advanced by the Distributor and are an obligation to be paid by the Corporation.
These expenses are being amortized over the 60-month period following the date
of the initial public offering of the Corporation's shares. In the event that
all or part of the Distributor's initial investment in the Corporation's shares
is redeemed prior to the full reimbursement of the organizational expenses, the
Corporation's obligation to make reimbursement will cease.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A Standard & Poor's ("S&P")
corporate bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods. The D rating will also be used upon a
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service ("MIS") rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Description of Preferred Stock Ratings
Standard & Poor's Ratings Services. A S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of Moody's familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's Rating's Services. A S&P note rating reflects the
liquidity factors and market access risks unique to notes. Notes maturing in 3
years or less will likely receive a note rating. Notes maturing beyond 3 years
will most likely receive a long-term debt rating. The following criteria will
be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS ratings
for state and municipal short-term obligations will be designated MIS Investment
Grade (MIG). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity of
the borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the short
run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Services commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to D for the lowest. Issuers rated A
are further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are regarded
as having the greatest capacity for timely payment. An A-1 designation
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation. An A-2 rating indicates that capacity for
timely payment is satisfactory; however, the relative degree of safety is not as
high as for issues designated A-1. Issues rated A-3 have adequate capacity for
timely payment; however, they are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. A C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default, which occurs when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. Moody's employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
DOLLAR-WEIGHTED AVERAGE MATURITY
Dollar-Weighted Average Maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value of the Fund's portfolio.
An obligation's maturity is typically determined on a stated final maturity
basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. Also, the
maturities of mortgage-backed securities and some asset-backed securities, such
as collateralized mortgage obligations, are determined on a weighted average
life basis, which is the average time for principal to be repaid. For a
mortgage security, this average time is calculated by assuming a constant
prepayment rate for the life of the mortgage. The weighted average life of
these securities is likely to be substantially shorter than their stated final
maturity.
The following are descriptions of some of the ratings of securities which
the Funds may use. The Funds may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS
Aerospace - 1.39%
Boeing Company (The) ................... 19,000 $ 1,023,625
Sundstrand Corporation ................. 8,600 433,225
Total ................................. 1,456,850
Airlines - 2.01%
AMR Corporation* ....................... 12,000 777,000
Southwest Airlines Co. ................. 74,150 1,325,431
Total ................................. 2,102,431
Automotive - 5.73%
Chrysler Corporation ................... 33,000 1,381,875
Dana Corporation ....................... 23,000 586,500
Eaton Corporation ...................... 15,000 813,750
Ford Motor Company ..................... 55,000 1,485,000
General Motors Corporation ............. 30,000 1,327,500
Magna International Group,
Inc., Class A ......................... 10,500 400,313
Total ................................. 5,994,938
Banks and Savings and Loans - 2.56%
Citicorp ............................... 22,500 956,250
First Bank Systems, Inc. ............... 15,000 605,625
First Interstate Bancorp ............... 9,000 711,000
Midlantic Corporation .................. 12,000 409,500
Total ................................. 2,682,375
Beverages - 1.04%
PepsiCo, Inc. .......................... 28,000 1,092,000
Biotechnology and Medical Services - 1.56%
Centocor, Inc.* ........................ 6,000 94,500
Medtronic, Inc. ........................ 12,000 832,500
Ventritex, Inc.* ....................... 37,000 707,625
Total ................................. 1,634,625
Building - 5.52%
Armstrong World Industries, Inc. ....... 27,000 1,231,875
Centex Corporation ..................... 33,200 800,950
Georgia-Pacific Corporation ............ 12,500 996,875
Louisiana-Pacific Corporation .......... 20,000 552,500
Pulte Corporation ...................... 36,100 848,350
Temple-Inland Inc. ..................... 10,500 471,188
Weyerhaeuser Company ................... 22,500 874,688
Total ................................. 5,776,426
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS(Continued)
Chemicals Major - 6.60%
Air Products & Chemicals, Inc. ......... 34,500 $ 1,798,313
Albemarle Corporation .................. 30,300 386,325
du Pont (E.I.) de Nemours and Company .. 30,000 1,815,000
PPG Industries, Inc. ................... 37,500 1,415,625
Praxair, Inc. .......................... 30,000 697,500
Union Carbide Corporation .............. 26,000 796,250
Total ................................. 6,909,013
Chemicals Specialty and Miscellaneous Technology - 4.01%
Betz Laboratories, Inc. ................ 15,000 656,250
Geon Company (The) ..................... 40,700 1,139,600
Polaroid Corporation ................... 42,000 1,459,500
Xerox Corporation ...................... 8,000 939,000
Total ................................. 4,194,350
Computers and Office Equipment - 3.86%
Computer Associates International, Inc. . 7,500 445,313
General Motors Corporation, Class E .... 30,000 1,166,250
International Business Machines
Corporation ........................... 15,000 1,228,125
Microsoft Corporation* ................. 9,000 639,558
Oracle Systems Corporation* ............ 18,000 561,366
Total ................................. 4,040,612
Consumer Electronics and Appliances - 1.47%
Harman International Industries,
Incorporated .......................... 7,600 282,150
Whirlpool Corporation .................. 23,000 1,259,250
Total ................................. 1,541,400
Electrical Equipment - 2.57%
Emerson Electric Co. ................... 12,000 798,000
General Electric Company ............... 35,000 1,894,375
Total ................................. 2,692,375
Electronics - 8.71%
AMP Incorporated ....................... 33,000 1,188,000
Analog Devices, Inc.* .................. 60,900 1,552,950
Applied Materials, Inc.* ............... 26,000 1,431,612
cisco Systems, Inc.* ................... 30,000 1,141,860
Intel Corporation ...................... 23,000 1,950,676
LSI Logic Corporation* ................. 27,200 1,428,000
Molex Incorporated, Class A ............ 12,500 425,000
Total ................................. 9,118,098
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS(Continued)
Engineering and Construction - 0.94%
Fluor Corporation ...................... 12,000 $ 579,000
Foster Wheeler Corporation ............. 12,000 406,500
Total ................................. 985,500
Financial - 2.31%
Federal Home Loan Mortgage Corporation . 15,000 907,500
Federal National Mortgage Association .. 9,000 732,375
Household International, Inc. .......... 18,000 783,000
Total ................................. 2,422,875
Food and Related - 0.78%
CPC International Inc. ................. 15,000 811,875
Hospital Management - 1.79%
Columbia/HCA Healthcare Corporation .... 11,200 481,600
National Medical Enterprises, Inc.* .... 30,000 476,250
United HealthCare Corporation .......... 19,500 911,625
Total ................................. 1,869,475
Household Products - 3.44%
Colgate-Palmolive Company .............. 18,000 1,188,000
Gillette Company (The) ................. 15,000 1,224,375
Procter & Gamble Company (The) ......... 18,000 1,192,500
Total.................................. 3,604,875
Leisure Time - 2.89%
Walt Disney Company (The) .............. 21,000 1,120,875
McDonald's Corporation ................. 42,000 1,433,250
Tele-Communications, Inc., Class A* .... 22,500 471,083
Total ................................. 3,025,208
Machinery - 7.50%
Case Corporation* ...................... 41,500 1,037,500
Caterpillar Inc. ....................... 46,000 2,558,750
Clark Equipment Company* ............... 13,500 1,113,750
Deere & Company ........................ 20,500 1,665,625
Ingersoll-Rand Company ................. 12,000 394,500
Parker Hannifin Corporation ............ 12,000 531,000
Trinova Corporation .................... 18,000 551,250
Total ................................. 7,852,375
Metals and Mining - 0.43%
Phelps Dodge Corporation ............... 8,000 455,000
Multi-Industry - 2.11%
ITT Corporation ........................ 21,500 2,206,438
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS(Continued)
Paper - 2.04%
International Paper Company ............ 18,000 $ 1,352,250
Union Camp Corporation ................. 15,000 778,125
Total ................................. 2,130,375
Railroads - 3.35%
CSX Corporation ........................ 10,500 826,875
Conrail Inc. ........................... 18,000 1,010,250
Norfolk Southern Corporation ........... 9,000 601,875
Southern Pacific Rail Corporation* ..... 14,000 245,000
Union Pacific Corporation .............. 15,000 825,000
Total ................................. 3,509,000
Retailing - 10.06%
Circuit City Stores, Inc. .............. 48,000 1,266,000
Dayton-Hudson Corporation .............. 14,000 1,001,000
Dillard Department Stores, Inc.,
Class A ............................... 28,500 787,313
Gap, Inc. (The) ........................ 21,000 745,500
Home Depot, Inc. (The) ................. 22,933 1,014,785
Limited, Inc. (The) .................... 22,500 520,313
May Department Stores Company (The) .... 30,000 1,110,000
Nordstrom, Inc. ........................ 11,000 445,500
OfficeMax, Inc.* ....................... 19,500 499,688
Penney (J.C.) Company, Inc. ............ 20,000 897,500
Sears, Roebuck and Co. ................ 6,000 320,250
Tommy Hilfiger Corporation* ............ 42,200 928,400
Toys "R" Us, Inc.* .................... 9,000 230,625
Wal-Mart Stores, Inc. .................. 30,000 765,000
Total ................................. 10,531,874
Telecommunications - 8.16%
AT&T Corporation ....................... 15,000 776,250
BellSouth Corporation .................. 9,000 535,500
General Instrument Corporation* ........ 30,000 1,042,500
MCI Communications Corporation ......... 56,000 1,151,472
MFS Communications Company, Inc. ....... 12,500 439,063
Motorola, Inc. ......................... 49,000 2,676,625
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 15,000 927,180
Vanguard Cellular Systems, Inc.,
Class A* .............................. 44,500 995,688
Total ................................. 8,544,278
Tire and Rubber - 1.05%
Goodyear Tire & Rubber Company (The) ... 30,000 1,102,500
TOTAL COMMON STOCKS - 93.88% $ 98,287,141
(Cost: $88,936,230)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.41%
U.S. Bancorp,
Master Note ........................... $1,472 $ 1,472,000
Food and Related - 2.98%
General Mills, Inc.,
Master Note ........................... 1,469 1,469,000
Sara Lee Corporation,
Master Note ........................... 1,656 1,656,000
Total ................................. 3,125,000
Public Utilities - Electric - 1.56%
PS Colorado Credit Corp.,
6.13%, 4-3-95 ......................... 1,635 1,634,443
TOTAL SHORT-TERM SECURITIES - 5.95% $ 6,231,443
(Cost: $6,231,443)
TOTAL INVESTMENT SECURITIES - 99.83% $104,518,584
(Cost: $95,167,673)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.17% 172,151
NET ASSETS - 100.00% $104,690,735
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS
Automotive - 2.94%
Automotive Industries Holdings, Inc.* .. 50,000 $ 1,087,500
Gentex Corporation* .................... 40,000 835,000
Superior Industries International, Inc. 40,700 1,037,850
Total ................................. 2,960,350
Biotechnology and Medical Services - 5.52%
EP Technologies, Inc. .................. 100,000 843,700
Pyxis Corporation* .................... 60,000 1,241,220
St. Jude Medical, Inc. ................. 15,000 645,000
STERIS Corporation ..................... 35,000 1,400,000
Tecnol Medical Products, Inc.* ......... 30,600 569,925
Ventritex, Inc.* ....................... 45,000 860,625
Total ................................. 5,560,470
Computers and Office Equipment - 19.59%
America Online, Inc.* .................. 40,000 2,975,000
Broderbund Software, Inc.* ............. 34,100 1,768,938
Cerner Corporation* .................... 22,000 1,056,000
Electronic Arts Inc.* .................. 24,000 541,488
HCIA Inc.* ............................. 10,000 244,370
Health Management Systems, Inc.* ...... 20,000 737,500
Integrated Silicon Systems, Inc.* ..... 15,500 447,563
Learning Company (The)* ................ 37,600 1,128,000
Macromedia, Inc.* ..................... 30,100 1,008,350
MapInfo Corporation* ................... 50,000 1,518,750
Microsoft Corporation* ................. 10,000 710,620
Minnesota Educational Computing
Corporation* .......................... 40,000 900,000
Parametric Technology Corporation* ..... 50,000 1,993,750
Synopsys, Inc.* ........................ 30,000 1,432,500
SystemSoft Corporation* ................ 60,000 525,000
Wall Data Incorporated* ................ 30,000 1,376,250
Wonderware Corporation* ............... 43,000 1,354,500
Total ................................. 19,718,579
Drugs and Hospital Supply - 4.91%
Circa Pharmaceuticals, Inc.* ........... 75,000 1,706,250
Forest Laboratories, Inc. .............. 30,000 1,428,750
OmniCare, Inc. ......................... 34,400 1,806,000
Total ................................. 4,941,000
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Shares Value
COMMON STOCKS (Continued)
Electronics - 5.82%
Atmel Corporation* .................... 10,000 $ 386,870
Cascade Communications Corp.* .......... 10,000 692,500
Digital Link Corporation* ............. 41,600 1,274,000
Micron Technology, Inc. ................ 35,000 2,660,000
Silicon Valley Group, Inc.* ............ 30,000 847,500
Total ................................. 5,860,870
Financial - 0.74%
Regional Acceptance Corporation* ....... 50,000 750,000
Hospital Management - 6.26%
Inphynet Medical Management Inc.* ...... 25,000 446,875
MedPartners, Inc.* ..................... 10,000 222,500
National Medical Enterprises, Inc.* .... 60,000 952,500
Quorum Health Group, Inc.* ............. 25,000 517,175
Sierra Health Services, Inc.* ......... 44,000 1,446,500
United HealthCare Corporation .......... 20,000 935,000
Vencor, Incorporated* .................. 50,000 1,781,250
Total ................................. 6,301,800
Retailing - 6.54%
Books-A-Million, Inc.* ................. 50,000 725,000
Hollywood Entertainment Corporation* ... 50,000 1,743,750
Leslie's Poolmart* .................... 25,200 384,300
Movie Gallery, Inc.* ................... 30,000 810,000
Tiffany & Co. .......................... 35,000 1,085,000
Tractor Supply Company* ............... 35,000 730,625
Williams-Sonoma, Inc.* ................ 43,750 1,104,688
Total ................................. 6,583,363
Services, Consumer and Business - 4.04%
Block (H&R), Inc. ...................... 45,000 1,951,875
Fusion Systems Corporation* ............ 30,000 892,500
Stewart Enterprises, Inc., Class A ..... 45,000 1,220,625
Total ................................. 4,065,000
Telecommunications - 1.74%
MFS Communications Company, Inc.* ...... 50,000 1,756,250
Textiles and Apparel - 1.98%
Department 56, Inc. .................... 50,000 1,993,750
Trucking - 0.70%
Heartland Express, Inc.* ............... 25,000 706,250
TOTAL COMMON STOCKS - 60.78% $ 61,197,682
(Cost: $46,003,346)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Banks and Savings and Loans - 4.15%
U.S. Bancorp,
Master Note ........................... $4,175 $ 4,175,000
Financial - 12.53%
Bell Atlantic Financial Services Inc.,
5.98%, 4-18-95 ........................ 2,610 2,602,630
Dana Credit Corp.,
6.15%, 4-21-95 ........................ 3,920 3,906,607
Merrill Lynch & Co. Inc.,
5.98%, 4-3-95 ......................... 3,000 2,999,003
Textron Financial Corp.,
6.15%, 4-18-95 ........................ 3,120 3,110,939
Total ................................. 12,619,179
Food and Related - 10.29%
General Mills, Inc.,
Master Note ........................... 4,306 4,306,000
Heinz (H.J.) Co.,
5.97%, 4-20-95 ........................ 4,000 3,987,397
Sara Lee Corporation,
Master Note ........................... 2,067 2,067,000
Total ................................. 10,360,397
Multi-Industry - 3.72%
ITT Corporation,
6.1%, 4-12-95 ......................... 3,755 3,748,001
Public Utilities - Pipelines - 2.98%
Enron Corp.,
6.15%, 4-10-95 ........................ 3,000 2,995,387
Retailing - 1.81%
K Mart Corporation,
6.15%, 4-11-95 ........................ 1,830 1,826,874
Telecommunications - 3.17%
GTE Florida Inc.,
6.1%, 4-18-95 ......................... 3,200 3,190,782
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1995
Value
TOTAL SHORT-TERM SECURITIES - 38.65% $ 38,915,620
(Cost: $38,915,620)
TOTAL INVESTMENT SECURITIES - 99.43% $100,113,302
(Cost: $84,918,966)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.57% 569,626
NET ASSETS - 100.00% $100,682,928
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Airlines - 2.67%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $310 $ 331,164
Banks and Savings and Loans - 5.08%
First Chicago Corporation,
9.875%, 7-1-99 ........................ 302 324,291
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 306,849
Total ................................. 631,140
Building - 3.22%
Masco Industries, Inc.,
6.25%, 6-15-95 ........................ 400 399,572
Chemicals Specialty and Miscellaneous
Technology - 1.60%
Polaroid Corporation,
7.25%, 1-15-97......................... 200 199,416
Domestic Oil - 3.59%
BP America Inc.,
9.5%, 1-1-98 .......................... 225 236,669
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 208,722
Total ................................. 445,391
Drugs and Hospital Supply - 2.43%
American Home Products Corporation,
7.70%, 2-15-2000 ...................... 300 302,094
Financial - 13.51%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ 300 307,671
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 300 296,031
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 176 171,107
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 48,707
7.75%, 1-15-99 ........................ 300 300,234
Household Finance Corporation,
9.0%, 9-28-2001 ....................... 285 299,059
United States Leasing International, Inc.,
8.75%, 5-1-96 ......................... 250 254,500
Total ................................. 1,677,309
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Related - 1.99%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ $236 $ 247,583
Insurance - 2.84%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 350 353,049
International Oil - 2.96%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 360 368,248
Multi-Industry - 4.05%
ITT Corporation,
8.25%, 8-1-2001 ....................... 500 502,390
Public Utilities - Electric - 0.77%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 95,863
Public Utilities - Pipelines - 2.55%
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 316,392
Railroads - 2.45%
CSX Transportation,
8.4%, 8-1-96 .......................... 300 304,356
Retailing - 7.09%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 100 103,610
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 250 265,080
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 511,250
Total ................................. 879,940
Telecommunications - 3.72%
GTE Corporation,
8.85%, 3-1-98 ......................... 350 361,106
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 101,439
Total ................................. 462,545
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textiles and Apparel - 2.57%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... $318 $ 318,541
TOTAL CORPORATE DEBT SECURITIES - 63.09% $ 7,834,993
(Cost: $7,953,882)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 82 81,494
5.5%, 4-15-2013 ....................... 100 95,937
5.5%, 9-15-2013 ....................... 100 97,250
6.4%, 2-15-2018 ....................... 250 233,750
Federal National Mortgage Association:
8.0%, 2-1-2008 ........................ 345 347,606
6.0%, 1-1-2009 ........................ 367 339,785
6.0%, 2-1-2009 ........................ 365 338,543
7.0%, 9-25-2020 ....................... 64 62,319
Government National Mortgage Association,
6.5%, 10-15-2008 ...................... 284 269,037
United States Treasury:
5.625%, 8-31-97 ....................... 400 389,064
5.375%, 5-31-98 ....................... 300 286,500
5.5%, 4-15-2000........................ 300 280,032
6.375%, 8-15-2002 ..................... 400 381,312
6.25%, 2-15-2003 ...................... 400 376,688
TOTAL UNITED STATES GOVERNMENT SECURITIES - 28.82% $ 3,579,317
(Cost: $3,765,839)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.60%
U.S. Bancorp,
Master Note ........................... 447 447,000
Food and Related - 4.75%
General Mills Inc.,
Master Note ........................... 458 458,000
Sara Lee Corporation,
Master Note ........................... 132 132,000
Total ................................. 590,000
TOTAL SHORT-TERM SECURITIES - 8.35% $1,037,000
(Cost: $1,037,000)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1995
Value
TOTAL INVESTMENT SECURITIES - 100.26% $12,451,310
(Cost: $12,756,721)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.26%) (32,544)
NET ASSETS - 100.00% $12,418,766
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.96%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 263,250
ARKANSAS - 1.35%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 370,500
CALIFORNIA - 7.32%
Sacramento County Sanitation Districts
Financing Authority, 1993 Revenue Bonds,
5.125%, 12-1-2013 ..................... 1,275 1,144,313
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 461,875
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 400,625
Total ................................. 2,006,813
COLORADO - 4.01%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1994A,
7.4%, 11-15-2004 ...................... 1,000 1,043,750
Series 1991A,
0.0%, 11-15-2003 ...................... 100 56,125
Total ................................. 1,099,875
FLORIDA - 4.62%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 965 861,263
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 274,500
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA (Continued)
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project), Second
Series 1992,
6.75%, 7-1-2022 ....................... $ 125 $ 130,625
Total ................................. 1,266,388
GEORGIA - 3.51%
Hospital Authority of Albany-Dougherty
County, Georgia, Revenue Bonds (Phoebe
Putney Memorial Hospital), Series 1993,
5.7%, 9-1-2013 ........................ 1,000 963,750
GUAM - 0.87%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 239,063
ILLINOIS - 5.50%
Illinois Health Facilities Authority,
Revenue Bonds, Series 1993 (OSF
Healthcare System),
5.75%, 11-15-2007 ..................... 700 671,125
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 453,125
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 385,000
Total ................................. 1,509,250
INDIANA - 3.08%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 500 469,375
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 376,500
Total ................................. 845,875
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
IOWA - 1.21%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ $ 340 $ 332,775
KANSAS - 4.88%
City of Lawrence, Kansas:
Hospital Revenue Bonds, Series 1994
(The Lawrence Memorial Hospital),
6.2%, 7-1-2019 ........................ 1,125 1,109,531
Multifamily Housing Development
Revenue Refunding Bonds (Brandon Woods,
Inc. Project), Series 1993,
6.625%, 4-1-2012 ...................... 225 227,813
Total ................................. 1,337,344
LOUISIANA - 2.63%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 206,750
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 203,250
Louisiana Public Facilities Authority,
Student Loan Revenue Bonds,
Series 1992A-2,
6.75%, 9-1-2006 ....................... 300 310,125
Total ................................. 720,125
MARYLAND - 9.63%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 880,000
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A,
6.3%, 7-1-2016 ........................ 700 680,750
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery
County Resource Recovery Project),
Series 1993A,
6.2%, 7-1-2010 ........................ $ 665 $ 655,856
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... 500 423,750
Total ................................. 2,640,356
MICHIGAN - 3.09%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 847,500
MISSOURI - 5.18%
The Junior College District of Metropolitan
Kansas City, Missouri, Lease Certificates
of Participation (Longview Recreation
Complex Project), Series 1994,
6.125%, 7-1-2014 ...................... 600 591,000
School District of Kansas City, Missouri,
Building Corporation, Insured Leasehold
Revenue Bonds, Series 1993D (The School
District of Kansas City, Missouri,
Elementary School Project),
5.0%, 2-1-2014 ........................ 650 580,125
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 250,000
Total ................................. 1,421,125
MONTANA - 0.36%
Anaconda-Deer Lodge County, Montana,
Solid Waste Facility Revenue Bonds
(ARCO-Anaconda Smelter Site Project),
Series 1992,
6.375%, 10-1-2016 ..................... 100 98,500
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEBRASKA - 1.79%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ $ 500 $ 491,875
NEW MEXICO - 5.02%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,378,125
NEW YORK - 2.32%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1993,
5.25%, 4-1-2013 ....................... 500 442,500
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 192,750
Total ................................. 635,250
NORTH CAROLINA - 3.86%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 1,000 1,060,000
OHIO - 2.86%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 785,625
OKLAHOMA - 2.55%
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 490,625
6.6%, 7-1-2014 ........................ 200 209,250
Total ................................. 699,875
TENNESSEE - 3.82%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,048,750
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TEXAS - 6.74%
Port of Corpus Christi, Authority of
Nueces County, Texas, Pollution Control
Revenue Bonds (Hoechst Celanese Corporation
Project), Series 1992,
6.875%, 4-1-2017 ...................... $1,000 $ 1,033,750
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 715,000
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 100 101,000
Total ................................. 1,849,750
VIRGINIA - 3.54%
Virginia Education Loan Authority (A
Political Subdivision of the Commonwealth
of Virginia), Student Loan Program
Revenue Bonds, Series C Bonds,
5.75%, 9-1-2010 ....................... 1,000 971,250
WASHINGTON - 5.38%
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds:
Series 1994B,
7.375%, 7-1-2004 ...................... 500 546,250
Series 1989A,
6.0%, 7-1-2017 ........................ 450 428,063
Housing Authority of the County of King,
Pooled Housing Refunding Revenue Bonds,
Series 1995A,
6.8%, 3-1-2026 ........................ 500 500,625
Total ................................. 1,474,938
TOTAL MUNICIPAL BONDS - 96.08% $26,357,927
(Cost: $26,618,029)
TOTAL SHORT-TERM SECURITIES - 1.93% $ 529,000
(Cost: $529,000)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1995
Value
TOTAL INVESTMENT SECURITIES - 98.01% $26,886,927
(Cost: $27,147,029)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.99% 547,155
NET ASSETS - 100.00% $27,434,082
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Automotive - 1.99%
Toyota Motor Credit Corporation,
6.743%, 8-5-96 (A) .................... $ 250 $ 222,000
Banks and Savings and Loans - 3.37%
Bayerische Landesbank Girozentrale,
3.855%, 3-28-97 (B) ................... $ 250 232,188
Deutsche Bank Aktiengesellschaft,
12.0%, 10-2-96 (C) .................... L250,000 145,000
Total ................................. 377,188
TOTAL CORPORATE DEBT SECURITIES - 5.36% $ 599,188
(Cost: $668,978)
OTHER GOVERNMENT SECURITIES
Australia - 8.20%
New South Wales Treasury,
8.5%, 3-1-96 (C) ...................... $A500 366,760
Queensland Treasury Corporation:
8.0%, 5-14-97 (C) ..................... $A550 396,149
12.0%, 5-15-97 (C) .................... $A200 154,946
Total ................................. 917,855
Canada - 13.18%
Province of Alberta,
8.625%, 11-27-96 ...................... $200 204,362
Government of Canada:
7.5%, 7-1-97 (C) ...................... $C1,000 706,890
6.25%, 2-1-98 (C) ..................... $C 350 238,795
10.75%, 3-15-98 (C) ................... $C 425 324,156
Total ................................. 1,474,203
Denmark - 2.93%
Kingdom of Denmark,
9.0%, 11-15-98 (C) .................... DKr1,750 328,405
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES (Continued)
France - 12.54%
Bon Du Tresor:
9.0%, 11-12-95 (C) .................... F1,000 $ 209,980
8.0%, 5-12-98 (C) ..................... F4,500 951,615
Credit Local de France,
4.64%, 2-23-96 (D) .................... $250 241,563
Total ................................. 1,403,158
Germany - 6.32%
Bundesobligation,
6.625%, 1-20-98 (C) ................... DM250 184,760
Bundesschatzanweisungen:
8.75%, 12-20-95 (C) ................... DM250 186,233
7.125%, 11-21-96 (C) .................. DM225 167,641
Kreditanstalt fur Weideraufbau,
10.6%, 5-18-98 (C) .................... L300,000 168,000
Total ................................. 706,634
Supranational - 3.62%
European Investment Bank,
6.75%, 5-14-98 (C) .................... F2,000 404,920
Sweden - 4.15%
Kingdom of Sweden,
10.75%, 1-23-97 (C) ................... SEK3,400 464,032
TOTAL OTHER GOVERNMENT SECURITIES - 50.94% $ 5,699,207
(Cost: $5,598,138)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-31-96 ........................ $1,300 1,310,361
6.875%, 4-30-97 ....................... $ 175 175,219
TOTAL UNITED STATES GOVERNMENT SECURITIES - 13.28% $ 1,485,580
(Cost: $1,517,640)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995
Face
Amount in
Thousands Value
UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS
Danish Krone, 3-25-96 (C) .............. DKr1,700 $ (57,561)
French Franc, 6-6-95 (C) ............... F1,350 (29,410)
TOTAL UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (0.78%) $ (86,971)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Consumer Electronics and Appliances - 3.83%
TDK (USA) Corp.,
5.99%, 4-17-95 ........................ $430 428,855
Drugs and Hospital Supply - 3.80%
Warner-Lambert Company,
6.0%, 4-4-95 .......................... $425 424,788
Financial - 7.14%
Dana Credit Corp.,
6.15%, 4-21-95 ........................ $400 398,633
USL Capital Corp.,
5.95%, 4-3-95 ......................... $400 399,868
Total ................................. 798,501
Food and Related - 6.91%
General Mills, Inc.,
Master Note............................ $506 506,000
Sara Lee Corporation,
Master Note ........................... $267 267,000
Total ................................. 773,000
Insurance - 4.43%
Aon Corporation,
6.02%, 5-15-95 ........................ $500 496,321
Total Commercial Paper - 26.11% 2,921,465
Time Deposits - 3.00%
Commonwealth Bank of
Australia - Grand Cayman,
7.5%, 4-13-95 (C) ..................... $A458 336,261
TOTAL SHORT-TERM SECURITIES - 29.11% $ 3,257,726
(Cost: $3,276,384)
See Notes to Schedules of Investments on page 103.
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1995
Value
TOTAL INVESTMENT SECURITIES - 97.91% $10,954,730
(Cost: $11,061,140)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.09% 233,671
NET ASSETS - 100.00% $11,188,401
See Notes to Schedules of Investments on page 103.
<PAGE>
WADDELL & REED FUNDS, INC.
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Coupon resets semiannually based on the arithmetic mean of two-year swap
rates in four nations: Italy, France, Spain and the United Kingdom,
determined by the following formula (minimum coupon of 0%): 19.65% - 2 x
(average two-year swap rate in the aforementioned nations).
(B) Coupon resets semiannually based on 14.13% - 1.5 x (5-year Deutschemark
swap rate). Coupon guaranteed at 3%.
(C) Principal amounts are denominated in the indicated foreign currency where
applicable (L - Italian Lira, $A - Australian Dollar, $C - Canadian Dollar,
DKr - Danish Krone, F - French Franc, DM - German Mark, SEK - Swedish
Krona).
(D) Coupon resets semiannually based on 13.05% - 6-month STIBOR (Stockholm
Interbank Offer Rate).
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
<TABLE>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Assets
Investment securities--at
value (Notes 1 and 4) $104,518,584 $100,113,302 $12,451,310 $26,886,927 $10,954,730
Cash .................... 4,922 4,993 4,016 4,738 1,522
Receivables:
Fund shares sold ...... 675,192 1,111,199 98,651 117,663 76,624
Dividends and interest 143,796 68,412 212,393 484,187 214,257
Investment securities
sold ................ 123,923 40,975 --- --- ---
Unamortized organization
expenses (Note 2) ..... 16,296 16,296 16,296 16,296 16,296
Prepaid insurance premium 557 468 234 362 234
------------ ------------ ----------- ----------- -----------
Total assets ........ 105,483,270 101,355,645 12,782,900 27,510,173 11,263,663
------------ ------------ ----------- ----------- -----------
Liabilities
Payable for investment
securities purchased 451,478 267,615 306,943 --- ---
Payable for Fund shares
redeemed ............ 242,368 309,490 22,962 24,553 27,893
Accrued service fee ... 59,664 54,316 6,508 14,682 3,652
Organization expenses
payable ............. 16,296 16,296 16,296 16,296 16,296
Accrued transfer agency
and dividend disbursing 14,609 16,065 2,229 3,107 1,607
Dividends payable ..... --- --- 6,703 13,764 3,974
Accrued accounting
services fee ........ 3,333 2,500 833 1,667 833
Other ................. 4,787 6,435 1,660 2,022 21,007
------------ ------------ ----------- ----------- -----------
Total liabilities ... 792,535 672,717 364,134 76,091 75,262
------------ ------------ ----------- ----------- -----------
Total net assets .. $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
============ ============ =========== =========== ===========
Net Assets
$0.01 par value capital stock
Capital stock ....... $ 82,257 $ 59,569 $ 12,802 $ 26,639 $ 11,951
Additional paid-in capital 96,142,360 83,616,019 12,785,592 28,320,895 11,541,594
Accumulated undistributed income (loss):
Accumulated undistributed
net investment income --- 6,511 --- --- ---
Accumulated undistributed
net realized gain (loss)
on investments
and foreign currency
transactions ...... (884,793) 1,806,493 (74,217) (653,350) (268,035)
Net unrealized appreciation
(depreciation) of investments
and translation of assets and
liabilities in foreign currencies
at end of period .. 9,350,911 15,194,336 (305,411) (260,102) (97,109)
------------ ------------ ----------- ----------- -----------
Net assets applicable to
outstanding units
of capital ........ $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
============ ============ =========== =========== ===========
Net asset value, redemption
and offering price
per share ............. $12.73 $16.90 $9.70 $10.30 $9.36
====== ====== ===== ====== =====
Capital shares outstanding 8,225,679 5,956,925 1,280,202 2,663,914 1,195,118
Capital shares authorized 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000
See notes to financial statements.
</TABLE>
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1995
<TABLE>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Investment Income
Income:
Interest ............ $ 261,257 $1,455,978 $725,279 $1,600,720 $658,657
Dividends ........... 1,450,943 43,022 --- --- ---
------------ ------------ ----------- ----------- -----------
Total income ...... 1,712,200 1,499,000 725,279 1,600,720 658,657
------------ ------------ ----------- ----------- -----------
Expenses (Notes 2 and 3):
Distribution fees ... 638,040 501,677 87,444 189,123 80,153
Investment management fee 599,703 537,667 64,948 140,752 70,373
Service fee ......... 197,508 154,029 24,936 54,969 12,428
Transfer agency and
dividend disbursing 161,715 166,311 28,172 39,703 20,382
Registration fees ... 47,830 42,506 15,751 22,277 15,346
Accounting services fee 30,833 28,333 10,000 12,500 10,000
Custodian fees ...... 10,357 9,766 2,872 3,567 8,154
Amortization of organization
expenses .......... 6,518 6,518 6,518 6,518 6,518
Audit fees .......... 9,598 7,834 3,890 4,694 5,131
Legal fees .......... 4,571 4,145 619 1,346 8,006
Other ............... 39,416 33,703 7,353 13,792 8,264
------------ ------------ ----------- ----------- -----------
Total expenses .... 1,746,089 1,492,489 252,503 489,241 244,755
------------ ------------ ----------- ----------- -----------
Net investment income
(loss) ........ (33,889) 6,511 472,776 1,111,479 413,902
------------ ------------ ----------- ----------- -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities ....... (393,442) 2,636,976 (74,217) (654,808) (243,087)
Realized net gain (loss)
from foreign currency
transactions ........ (5) --- --- --- 37,933
------------ ------------ ----------- ----------- -----------
(393,447) 2,636,976 (74,217) (654,808) (205,154)
------------ ------------ ----------- ----------- -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period .......... 6,249,301 13,371,790 (78,479) 1,079,863 283,430
Unrealized depreciation from
translation of assets and
liabilites in foreign
currencies .......... --- --- --- --- (79,852)
------------ ------------ ----------- ----------- -----------
6,249,301 13,371,790 (78,479) 1,079,863 203,578
------------ ------------ ----------- ----------- -----------
Net gain (loss) on
investments ....... 5,855,854 16,008,766 (152,696) 425,055 (1,576)
------------ ------------ ----------- ----------- -----------
Net increase in net assets
resulting from
operations ...... $5,821,965 $16,015,277 $320,080 $1,536,534 $412,326
============ ============ =========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1995
<TABLE>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment income
(loss) ............ $ (33,889) $ 6,511 $ 472,776 $ 1,111,479 $ 413,902
Realized net gain (loss)
on investments .... (393,447) 2,636,976 (74,217) (654,808) (205,154)
Unrealized appreciation
(depreciation) .... 6,249,301 13,371,790 (78,479) 1,079,863 203,578
------------ ------------ ----------- ----------- -----------
Net increase in net assets
resulting from operations 5,821,965 16,015,277 320,080 1,536,534 412,326
------------ ------------ ----------- ----------- -----------
Dividends to shareholders from:*
Net investment income --- --- (472,776) (1,111,479) (413,902)
Realized net gain from
investment transactions --- (1,599,535) (9,889) --- ---
------------ ------------ ----------- ----------- -----------
--- (1,599,535) (482,665) (1,111,479) (413,902)
------------ ------------ ----------- ----------- -----------
Capital share transactions** 37,133,483 42,742,909 910,216 2,048,542 907,668
------------ ------------ ----------- ----------- -----------
Total increase ...... 42,955,448 57,158,651 747,631 2,473,597 906,092
Net Assets
Beginning of period ... 61,735,287 43,524,277 11,671,135 24,960,485 10,282,309
------------ ------------ ----------- ----------- -----------
End of period ......... $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
============ ============ =========== =========== ===========
Undistributed net
investment income $--- $6,511 $--- $--- $---
==== ====== ==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares ............. 3,945,209 3,125,059 466,132 603,090 243,352
Shares issued from reinvest-
ment of dividends and/or
capital gains
distributions ......... --- 105,331 47,776 101,809 44,248
Shares redeemed ......... (870,169) (365,439) (420,022) (507,544) (190,297)
--------- --------- ------- ------- -------
Increase in outstanding
capital shares ........ 3,075,040 2,864,951 93,886 197,355 97,303
========= ========= ======== ======= =======
Value issued from sale
of shares ............. $47,666,060 $46,616,473 $4,491,826 $6,050,262 $2,259,874
Value issued from reinvest-
ment of dividends and/or
capital gains
distributions ......... --- 1,597,857 460,066 1,014,595 410,904
Value redeemed .......... (10,532,577) (5,471,421) (4,041,676) (5,016,315) (1,763,110)
----------- ----------- ---------- ---------- ----------
Increase in outstanding
capital ............... $37,133,483 $42,742,909 $ 910,216 $2,048,542 $ 907,668
=========== =========== ========== ========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1994
<TABLE>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment income
(loss) ............ $ (42,753) $ (226,026) $ 323,105 $ 626,494 $335,901
Realized net gain (loss)
on investments .... (472,421) 1,570,093 33,900 163,024 (78,030)
Unrealized appreciation
(depreciation) .... 2,475,374 1,574,011 (311,607) (1,533,977) (247,772)
------------ ------------ ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ... 1,960,200 2,918,078 45,398 (744,459) 10,099
------------ ------------ ----------- ----------- -----------
Dividends to shareholders from:*
Net investment income --- --- (323,105) (626,494) (247,980)
Realized net gain
from investment
transactions ...... --- (656,864) (18,818) (253,457) ---
Tax-basis return of
capital ........... --- --- --- --- (87,921)
------------ ------------ ----------- ----------- -----------
--- (656,864) (341,923) (879,951) (335,901)
------------ ------------ ----------- ----------- -----------
Capital share transactions** 47,315,309 33,287,538 5,708,291 18,028,155 3,427,061
------------ ------------ ----------- ----------- -----------
Total increase ...... 49,275,509 35,548,752 5,411,766 16,403,745 3,101,259
Net Assets
Beginning of period ... 12,459,778 7,975,525 6,259,369 8,556,740 7,181,050
------------ ------------ ----------- ----------- -----------
End of period ......... $61,735,287 $43,524,277 $11,671,135 $24,960,485 $10,282,309
============ ============ =========== =========== ===========
Undistributed net
investment income $--- $--- $--- $--- $---
==== ==== ==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares ............. 4,355,295 2,456,137 708,062 1,770,824 506,618
Shares issued from reinvest-
ment of dividends and/or
capital gains distributions --- 46,641 32,737 74,079 34,499
Shares redeemed ......... (329,843) (93,395) (176,690) (191,170) (185,224)
--------- --------- ------- --------- -------
Increase in outstanding
capital shares ........ 4,025,452 2,409,383 564,109 1,653,733 355,893
========= ========= ======= ========= =======
Value issued from sale
of shares ............. $51,194,063 $33,940,272 $7,164,902 $19,289,336 $4,868,350
Value issued from reinvest-
ment of dividends and/or
capital gains distributions --- 656,245 330,864 805,677 330,513
Value redeemed .......... (3,878,754) (1,308,979) (1,787,475) (2,066,858) (1,771,802)
----------- ----------- ---------- ----------- ----------
Increase in outstanding
capital ............... $47,315,309 $33,287,538 $5,708,291 $18,028,155 $3,427,061
=========== =========== ========== =========== ==========
See notes to financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $11.99 $11.07 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss).... 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. .74 .93 1.07
------ ------ ------
Total from investment
operations ....... .74 .92 1.09
------ ------ ------
Less dividends from net
investment income (0.00) (0.00) (0.02)
------ ------ ------
Net asset value,
end of period .... $12.73 $11.99 $11.07
====== ====== ======
Total return ....... 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $104,691 $61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 16.60% 17.31% 23.97%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $14.08 $11.68 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 3.15 2.75 1.79
------ ------ ------
Total from investment
operations ....... 3.15 2.71 1.77
------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.33) (0.31) (0.08)
------ ------ ------
Total distributions (0.33) (0.31) (0.09)
------ ------ ------
Net asset value,
end of period .... $16.90 $14.08 $11.68
====== ====== ======
Total return ....... 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $100,683 $43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.23% 2.34% 2.50%
Ratio of net investment
income to average
net assets ....... 0.01% -0.97% -0.68%
Portfolio turnover
rate ............. 56.30% 69.12% 124.44%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $9.84 $10.06 $10.00
----- ------ ------
Income from investment
operations:
Net investment
income .......... 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) (0.20) .06
----- ------ ------
Total from investment
operations ....... .26 .15 .24
----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.01) (0.02) (0.00)
----- ------ ------
Total distributions (0.40) (0.37) (0.18)
----- ------ ------
Net asset value,
end of period .... $9.70 $ 9.84 $10.06
===== ====== ======
Total return ....... 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ....... 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 29.20% 25.90% 39.64%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $10.12 $10.53 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... .18 (0.28) .53
------ ------ ------
Total from investment
operations ....... .62 .11 .74
------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.13) (0.00)
------ ------ ------
Total distributions (0.44) (0.52) (0.21)
------ ------ ------
Net asset value,
end of period .... $10.30 $10.12 $10.53
====== ====== ======
Total return ....... 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 56.92% 18.93% 140.02%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GLOBAL INCOME FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal year ended March 31,period ended
----------------------------------- March 31,
1995 1994 1993*
------ ------------------
Net asset value,
beginning of
period ........... $9.37 $9.68 $10.00
----- ----- ------
Income from investment
operations:
Net investment
income .......... .36 .34 .20
Net realized and
unrealized loss
on investments .. (0.01) (0.31) (0.32)
----- ----- ------
Total from investment
operations ....... .35 .03 (0.12)
----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.36) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.08) (0.00)
----- ----- ------
Total distributions. (0.36) (0.34) (0.20)
----- ----- ------
Net asset value,
end of period .... $9.36 $9.37 $ 9.68
===== ===== ======
Total return ....... 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 13.33% 34.90% 8.35%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Corporation issues five classes of capital shares; each class represents
ownership of a separate mutual fund. Each Fund except Global Income Fund is a
diversified fund. The assets belonging to each Fund are held separately by the
Custodian. The capital shares of each Fund represent a pro rata beneficial
interest in the principal, net income and realized and unrealized capital gains
or losses of its respective investments and other assets. The following is a
summary of significant accounting policies consistently followed by the
Corporation in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using
pricing systems provided by a major dealer in bonds or by an information
service. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over-the-
counter are priced using NASDAQ (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked or
closing prices quoted by major dealers in such stocks. Securities for
which quotations are not readily available are valued as determined in good
faith in accordance with procedures established by and under the general
supervision of the Corporation's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market. Short-
term debt securities denominated in foreign currencies are valued at
amortized cost in that currency.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
4 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. 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 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 5 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards. Permanent items identified in the period ended March 31,
1995 have been reclassified to additional paid-in capital as follows:
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
-------------- ------------- ----------
Total Return Fund $33,894 $ --- $(33,894)
Global Income Fund --- 7,406 (7,406)
Net investment income, net realized gains and net assets were not affected
by these changes.
NOTE 2 -- Organization
The Corporation was incorporated in Maryland on January 29, 1992 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until September 21, 1992 (the date of
the initial public offering).
On April 24, 1992, Waddell & Reed, Inc. ("W&R"), the Corporation's
principal distributor and underwriter, purchased for investment 2,000 shares of
each class of the Corporation at their net asset value of $10.00 per share.
The Corporation's organizational expenses in the amount of $162,960 were
advanced to the Corporation by W&R and are an obligation to be paid by it.
These expenses are being amortized and are payable evenly over 60 months
following the date of the initial public offering.
NOTE 3 -- Investment Management And Payments To Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly-owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee
computed on each Fund's net assets as of the close of business each day at the
following annual rates: Total Return Fund - 0.71% of net assets, Growth Fund -
0.81% of net assets, Limited-Term Bond Fund - 0.56% of net assets, Municipal
Bond Fund - 0.56% of net assets and Global Income Fund - 0.66% of net assets.
The fee is accrued and paid daily.
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 Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the five Funds 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 Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Corporation also pays WARSCO a per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Corporation also reimburses W&R, WRIMCO, and WARSCO for certain out-
of-pocket costs.
The Corporation has adopted a 12b-1 plan under which W&R, principal
underwriter and sole distributor of the Corporation's shares, is compensated in
an amount calculated and payable daily up to 1% annually of each of the Fund's
average daily net assets. This fee consists of two elements: (i) up to 0.75%
may be paid to the Distributor (W&R) for distribution services and distribution
expenses including commissions paid by the Distributor to its sales
representatives and managers and (ii) up to 0.25% may be paid to reimburse the
Distributor for continuing payments made to the Distributor's representatives
and managers, its administrative costs in overseeing these payments, and the
expenses of WARSCO in providing certain personal services to shareholders.
During the period ended March 31, 1995, the Distributor received $1,940,308 in
12b-1 payments. During this same period W&R paid sales commissions of
$1,941,437.
A contingent deferred sales charge may be assessed against a shareholder's
redemption amount and paid to the Distributor, W&R. The purpose of the deferred
sales charge is to compensate the Distributor for the costs incurred by the
Distributor in connection with the sale of a Fund's shares. The amount of the
deferred sales charge will be the following percent of the total amount invested
during a calendar year to acquire the shares or the value of the shares
redeemed, whichever is less. Redemption at any time during the calendar year of
investment and the first full calendar year after the calendar year of
investment, 3%; the second full calendar year, 2%; the third full calendar year,
1%; and thereafter, 0%. All investments made during a calendar year shall be
deemed as a single investment during the calendar year for purposes of
calculating the deferred sales charge. The deferred sales charge will not be
imposed on shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares purchased
during the deferred sales charge period. During the period ended March 31,
1995, the Distributor received $367,416 in deferred sales charges.
The Corporation paid Directors' fees of $6,394.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 1995 are
summarized as follows:
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
-----------------------------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $48,637,946$39,435,413$3,217,795$16,344,101$1,144,934
Purchases of U.S. Government
securities --- --- 573,095 --- ---
Purchases of short-term
securities 57,160,445292,534,0465,621,00013,635,00013,488,914
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 13,265,44922,085,332 1,399,01813,577,128 1,796,925
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,861,541 --- 639,477
Proceeds from maturities
and sales of short-term
securities 53,979,664270,567,4264,708,21014,553,76911,075,073
For Federal income tax purposes, cost of investments owned at March 31,
1995 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $95,173,097 $11,962,038 $2,616,551 $9,345,487
Growth Fund 84,918,966 16,530,744 1,336,408 15,194,336
Limited-Term Bond Fund12,756,721 29,099 334,510 (305,411)
Municipal Bond Fund 27,147,029 490,876 750,978 (260,102)
Global Income Fund 11,061,140 341,065 360,504 (19,439)
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Growth Fund realized capital gain net
income of $2,636,976, during the year ended March 31, 1995, of which a portion
was paid to shareholders during the year ended March 31, 1995. Remaining
capital gain net income will be distributed to the Fund's shareholders. For
Federal income tax purposes, Total Return Fund, Limited-Term Bond Fund,
Municipal Bond Fund and Global Income Fund realized net capital losses. A
portion of the net capital loss was deferred to the year ending March 31, 1996
(see discussion below). Capital loss carryovers are available to offset future
realized capital gain net income for Federal income tax purposes. Current year
net capital losses and cumulative capital loss carryovers are summarized below:
Net capital
loss for Deferred Available
the year to year for offset
ended ending through March 31,
March 31, March 31, -----------------
1995 1996 2002 2003
-------- -------- -------- --------
Total Return
Fund $659,519 $156,256 $723,114 $503,263
Limited-Term
Bond Fund 74,217 47,672 26,545 26,545
Municipal Bond
Fund 654,808 321,084 333,723 333,723
Global Income
Fund 287,847 24,934 270,669 262,913
It is the policy of each Fund to comply with excise tax distribution
requirements of the Internal Revenue Code (the "Code") Section 4982, which
requires each Fund to measure and distribute annually, if necessary, ordinary
income for the calendar year and net capital gains realized during the twelve-
month period ended October 31. Code regulations permit a Fund to defer, into
its next fiscal year, net capital losses incurred from November 1 to the end of
its fiscal year ("post-October losses").
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Waddell & Reed Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the five mutual funds
comprising Waddell & Reed Funds, Inc.(the "Corporation"), issuer of the
respective five classes of capital shares (Total Return Fund, Growth Fund,
Limited-Term Bond Fund, Municipal Bond Fund and Global Income Fund) at March 31,
1995, the results of its operations for the year then ended and the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Corporation's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 5, 1995
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
AUGUST 31, 1995
Shares Value
COMMON STOCKS
Automotive - 1.24%
Ford Motor Company ..................... 2,000 $ 61,250
Banks and Savings and Loans - 2.98%
Compass Bancshares, Inc. ............... 2,700 81,167
CoreStates Financial Corp. ............. 1,800 66,600
Total.................................. 147,767
Beverages - 0.86%
Buenos Aires Embotelladora S.A., ADR ... 1,800 42,750
Biotechnology and Medical Services - 0.95%
Genentech, Inc.* ........................ 1,000 47,125
Chemicals Specialty and Miscellaneous Technology - 2.14%
Crompton & Knowles Corporation ......... 3,300 49,912
Geon Company (The) ...................... 2,100 55,913
Total.................................. 105,825
Consumer Electronics and Appliances - 2.59%
Samsung Electronics Co., Ltd., GRR, New* 6 377
Samsung Electronics Co., Ltd., GDR* ..... 2,000 128,000
Total.................................. 128,377
Domestic Oil - 1.27%
Enron Oil & Gas Company ................ 2,700 62,775
Engineering and Construction - 2.11%
Empresas ICA Sociedad Controladora, S.A.
de C.V., ADS .......................... 8,700 104,400
Hospital Management - 4.71%
LTC Properties, Inc. ................... 6,300 89,775
PacifiCare Health Systems, Inc.* ........ 1,700 96,900
United HealthCare Corporation .......... 1,100 46,475
Total.................................. 233,150
Machinery - 0.89%
Keystone International, Inc. ........... 2,200 44,275
Paper - 1.19%
James River Corporation of Virginia .... 1,700 59,075
Railroads - 2.67%
Kansas City Southern Industries, Inc. .. 3,000 132,000
Services, Consumer and Business - 1.40%
Dun & Bradstreet Corporation (The) ...... 1,200 69,450
TOTAL COMMON STOCKS - 25.00% $1,238,219
(Cost: $1,178,888)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
AUGUST 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITY - 3.16%
Leisure Time
Viacom International, Inc.,
9.125%, 8-15-99 ....................... $ 150 $ 156,375
(Cost: $157,033)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.125%, 5-31-97 ....................... 400 401,688
5.875%, 6-30-2000 ..................... 400 396,688
9.125%, 5-15-2018 ..................... 650 824,889
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 32.77% $1,623,265
(Cost: $1,597,115)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 4.54%
U.S. Bancorp,
Master Note ........................... 225 225,000
Chemicals Major - 2.01%
Hercules, Inc.,
5.72%, 9-25-95 ........................ 100 99,619
Consumer Electronics and Appliances - 4.00%
Whirlpool Corporation,
5.75%, 10-27-95 ....................... 200 198,211
Financial - 6.25%
Caterpillar Financial Australia Ltd.,
5.8%, 9-12-95 ......................... 200 199,646
Textron Financial Group,
5.85%, 9-14-95 ........................ 110 109,768
Total ................................. 309,414
Food and Related - 11.80%
General Mills, Inc.,
Master Note ........................... 170 170,000
Heinz (H.J.) Company,
5.75%, 9-21-95 ........................ 200 199,361
Sara Lee Corporation,
Master Note ........................... 215 215,000
Total ................................. 584,361
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
AUGUST 31, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Publishing and Advertising - 3.02%
American Greetings Corporation,
5.75%, 9-14-95 ........................ $150 $ 149,688
Railroad - 4.03%
Burlington Northern Railroad Co.,
5.85%, 9-5-95 ......................... 200 199,870
TOTAL SHORT-TERM SECURITIES - 35.65% $1,766,163
(Cost: $1,766,163)
TOTAL INVESTMENT SECURITIES - 96.58% $4,784,022
(Cost: $4,699,199)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 3.42% 169,402
NET ASSETS - 100.00% $4,953,424
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
ASSET STRATEGY FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
(Unaudited)
Assets
Investment securities -- at value
(Notes 1 and 4) ................................. $4,784,022
Cash ............................................ 7,011
Receivables:
Fund shares sold ................................ 238,157
Dividends and interest .......................... 33,335
Investment securities sold ...................... 4,073
Unamortized prepaid registration fees (Note 2) ... 15,675
Unamortized organization expenses (Note 2) ....... 721
Prepaid insurance premium ........................ 144
Other assets ..................................... 1,721
----------
Total assets .................................. 5,084,859
----------
Liabilities
Payable for Fund shares redeemed ................. 88,003
Payable for investment securities purchases ...... 27,036
Prepaid registration fees payable ................ 15,675
Organization expenses payable .................... 721
----------
Total liabilities ............................. 131,435
----------
Total net assets ............................. $4,953,424
==========
Net Assets
$0.01 par value capital stock, authorized --
500,000,000; shares outstanding -- 481,616
Capital stock ................................... $ 4,816
Additional paid-in capital ...................... 4,844,217
Accumulated undistributed income:
Accumulated undistributed net investment
income ......................................... 18,335
Accumulated undistributed net realized gain on
investment transactions ...................... 1,233
Net unrealized appreciation in value of
investments at end of period ................... 84,823
----------
Net assets applicable to outstanding
units of capital ............................. $4,953,424
==========
Net asset value per share (net assets divided
by shares outstanding) ........................... $10.29
======
See notes to financial statements.
<PAGE>
ASSET STRATEGY FUND
STATEMENT OF OPERATIONS
For the Period Ended AUGUST 31, 1995
(Unaudited)
Investment Income
Income:
Interest ........................................ $ 37,983
Dividends ....................................... 3,364
--------
Total income .................................. 41,347
--------
Expenses (Notes 2& 3):
Investment management fee ....................... 5,964
Distribution fee ................................ 5,680
Amortization of prepaid registration fees ....... 5,225
Transfer agency and dividend disbursing ......... 1,359
Custodian fees .................................. 723
Service fee ..................................... 608
Amortization of organization expenses ........... 38
Legal fee ....................................... 37
Other ........................................... 274
--------
Total expenses ................................ 19,908
--------
Net investment income ........................ 21,439
--------
Realized and Unrealized Gain on Investments
Realized net gain on investments ................. 1,233
Unrealized appreciation in value of investments
during the period ............................... 84,823
--------
Net gain on investments ....................... 86,056
--------
Net increase in net assets resulting
from operations ............................ $107,495
========
See notes to financial statements.
<PAGE>
ASSET STRATEGY FUND
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
For the
period
ended
August 31,
1995
------------
Increase in Net Assets
Operations:
Net investment income ............ $ 21,439
Realized net gain on
investments .................... 1,233
Unrealized appreciation........... 84,823
-----------
Net increase in net assets
resulting from operations ..... 107,495
-----------
Dividends to shareholders from
net investment income* ........... (3,104)
-----------
Capital share transactions:
Proceeds from sale of shares
(504,904 shares) ............... 5,085,025
Proceeds from reinvestment of
dividends (311 shares) ......... 3,113
Payments for shares redeemed
(23,599 shares) ................ (239,105)
-----------
Net increase in net assets
resulting from capital
share transactions ............ 4,849,033
-----------
Total increase ................ 4,953,424
Net Assets
Beginning of period ............... ---
-----------
End of period, including undistributed
net investment income of $18,335 . $4,953,424
===========
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
ASSET STRATEGY FUND
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
(Unaudited)
For the
period
from
April 20,
1995
through
August 31,
1995*
-------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
income .......... 0.06
Net realized and
unrealized gain
on investments... 0.25
------
Total from investment
operations ........ 0.31
Less dividends from
net investment
income........... (0.02)
------
Net asset value,
end of period ..... $10.29
======
Total return ....... 3.11%
Net assets, end of
period (000
omitted) ......... $4,953
Ratio of expenses
to average net
assets ............ 2.58%
Ratio of net investment
income to average net
assets ............ 2.78%
Portfolio
turnover rate ..... 1.20%
*The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per-share data and ratios are for a capital share
outstanding for the period from April 20, 1995 (initial public offering)
through August 31, 1995. Ratios and the portfolio turnover rate have
been annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
(Unaudited)
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Corporation issues six classes of capital shares; each class represents
ownership of a separate mutual fund. The assets belonging to each Fund are
held separately by the Custodian. The capital shares of each Fund represent a
pro rata beneficial interest in the principal, net income and realized and
unrealized capital gains or losses of its respective investments and other
assets. The following is a summary of significant accounting policies
consistently followed by the Corporation in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using
pricing systems provided by a major dealer in bonds or by an information
service. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked or
closing prices quoted by major dealers in such stocks. Securities for
which quotations are not readily available are valued as determined in good
faith in accordance with procedures established by and under the general
supervision of the Corporation's Board of Directors. Short-term debt
securities are valued at amortized cost, which approximates market. Short-
term debt securities denominated in foreign currencies are valued at
amortized cost in that currency.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
4 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. 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 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.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.
NOTE 2 -- Organization
Asset Strategy Fund (the "Fund") was incorporated in Maryland on January
31, 1995 and was inactive (except for matters relating to its organization and
registration as an investment company under the Investment Company Act of 1940
and registration of shares under the Securities Act of 1933) until April 20,
1995 (the date of the initial public offering).
The Fund's prepaid registration fees in the amount of $20,900 were advanced
to the Corporation by W&R and are an obligation to be paid by it. These
expenses are being amortized and are payable evenly over 12 months following the
date of the initial public offering.
The Fund's organizational expenses in the amount of $759 were advanced to
the Corporation by W&R and are an obligation to be paid by it. These expenses
are being amortized and are payable evenly over 60 months following the date of
the initial public offering.
NOTE 3 -- Investment Management And Payments To Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly-owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee
computed on each Fund's net assets as of the close of business each day at the
following annual rates: Total Return Fund - 0.71% of net assets, Growth Fund -
0.81% of net assets, Limited-Term Bond Fund - 0.56% of net assets, Municipal
Bond Fund - 0.56% of net assets, International Growth Fund - 0.81% of net assets
and Asset Strategy Fund - 0.81% of net assets. The fee is accrued and paid
daily.
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 Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the six Funds 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 Fund
------------------------ -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Corporation also pays WARSCO a per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Corporation also reimburses W&R, WRIMCO, and WARSCO for certain out-
of-pocket costs.
The Corporation has adopted a 12b-1 plan under which W&R, principal
underwriter and sole distributor of the Corporation's shares, is compensated in
an amount calculated and payable daily up to 1% annually of each of the Fund's
average daily net assets. This fee consists of two elements: (i) up to 0.75%
may be paid to the Distributor (W&R) for distribution services and distribution
expenses including commissions paid by the Distributor to its sales
representatives and managers and (ii) up to 0.25% may be paid to reimburse the
Distributor for continuing payments made to the Distributor's representatives
and managers, its administrative costs in overseeing these payments, and the
expenses of WARSCO in providing certain personal services to shareholders.
During the period ended August 31, 1995, the Distributor received $6,288 in 12b-
1 payments from the Fund. During this same period W&R paid sales commissions of
$1,993,634, of which $82,339 was sales commission paid due to sales of the Fund.
A contingent deferred sales charge may be assessed against a shareholder's
redemption amount and paid to the Distributor, W&R. The purpose of the deferred
sales charge is to compensate the Distributor for the costs incurred by the
Distributor in connection with the sale of a Fund's shares. The amount of the
deferred sales charge will be the following percent of the total amount invested
during a calendar year to acquire the shares or the value of the shares
redeemed, whichever is less. Redemption at any time during the calendar year of
investment and the first full calendar year after the calendar year of
investment, 3%; the second full calendar year, 2%; the third full calendar year,
1%; and thereafter, 0%. All investments made during a calendar year shall be
deemed as a single investment during the calendar year for purposes of
calculating the deferred sales charge. The deferred sales charge will not be
imposed on shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of the shareholder's account
resulting from capital appreciation above the amount paid for shares purchased
during the deferred sales charge period. During the period ended August 31,
1995, the Distributor received $409,402 in deferred sales charges, of which $694
was received from the Fund.
The Corporation paid no Directors' fees.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Securities Transactions
The Fund, for the period ending August 31, 1995, had purchases of
investment securities, other than U.S. Government and short-term securities,
aggregated $1,338,788 while proceeds from maturities and sales aggregated
$4,073. Purchases of short-term securities aggregated $6,387,692 while proceeds
from maturities and sales aggregated $4,645,135. Purchase of U.S. Government
securities aggregated $1,597,406. There were no sales of U.S. Government
securities .
For Federal income tax purposes, cost of investments owned at August 31,
1995 was $4,699,199, resulting in net unrealized appreciation of $84,823, of
which $99,437 related to appreciated securities and $14,614 related to
depreciated securities.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: July 12, 1995 /s/Keith A. Tucker
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board July 12, 1995
- -------------------- --------------
Ronald K. Richey
/s/Keith A. Tucker President and Director July 12, 1995
- -------------------- (Principal Executive Officer) --------------
Keith A. Tucker
/s/Theodore W. Howard Vice President, Treasurer July 12, 1995
- -------------------- and Principal Accounting --------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and July 12, 1995
- -------------------- Principal Financial --------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director July 12, 1995
- -------------------- --------------
Henry L. Bellmon
Director
- -------------------- --------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director July 12, 1995
- -------------------- --------------
Jay B. Dillingham
/s/John F. Hayes Director July 12, 1995
- -------------------- --------------
John F. Hayes
/s/Glendon E. Johnson Director July 12, 1995
- -------------------- --------------
Glendon E. Johnson
/s/William T. Morgan Director July 12, 1995
- -------------------- --------------
William T. Morgan
Director
- -------------------- --------------
Doyle Patterson
/s/Frederick Vogel III Director July 12, 1995
- -------------------- --------------
Frederick Vogel III
/s/Paul S. Wise Director July 12, 1995
- -------------------- --------------
Paul S. Wise
Director
- -------------------- --------------
Leslie S. Wright
/s/Linda Graves Director July 12, 1995
- -------------------- --------------
Linda Graves
/s/Eleanor Schwartz Director July 12, 1995
- -------------------- --------------
Eleanor Schwartz
/s/James Judd Director July 12, 1995
- -------------------- --------------
James Judd
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-wrartsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
WADDELL & REED FUNDS, INC.
Waddell & Reed Funds, Inc. (the "Corporation"), a Maryland corporation,
having its principal office in Baltimore City, Maryland, hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at Three
Billion (3,000,000,000) shares of capital stock (par value $0.01 per share),
amounting in the aggregate to a par value of Thirty Million Dollars
($30,000,000.00). Such shares have heretofore been classified by the Board of
Directors among the series of the Corporation as follows:
Total Return Fund 500,000,000 shares
Growth Fund 500,000,000 shares
Limited-Term Bond Fund 500,000,000 shares
Municipal Bond Fund 500,000,000 shares
International Growth Fund 500,000,000 shares
Asset Strategy Fund 500,000,000 shares
All authorized shares that have not been designated or classified remain
available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly redesignates and reclassifies the capital stock of the
Corporation among the series of the Corporation and classes thereof as follows:
Total Return Fund, Class B (250,000,000 shares)
Total Return Fund, Class Y (250,000,000 shares)
Growth Fund, Class B (250,000,000 shares)
Growth Fund, Class Y (250,000,000 shares)
Limited-Term Bond Fund, Class B (250,000,000 shares)
Limited-Term Bond Fund, Class Y (250,000,000 shares)
Municipal Bond Fund, Class B (250,000,000 shares)
Municipal Bond Fund, Class Y (250,000,000 shares)
International Growth Fund, Class B (250,000,000 shares)
International Growth Fund, Class Y (250,000,000 shares)
Asset Strategy Fund, Class B (250,000,000 shares)
Asset Strategy Fund, Class Y (250,000,000 shares)
The aggregate number of shares of all classes of stock of the Corporation
remains at Three Billion (3,000,000,000) shares of capital stock, the par value
remains $0.01 per share, and the aggregate par value of all authorized stock
remains Thirty Million Dollars ($30,000,000.00).
THIRD: The capital stock of the Corporation is divided into series and
classes and there are no changes in the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as shares of capital stock as set forth
in the Corporation's Articles of Incorporation, except as follows:
(1) The Class B stock of each series shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The Class Y stock of each series shall not be subject to either a
front-end or contingent deferred sales charge or Rule 12b-1 fees
and is subject to a shareholder servicing fee which differs from
that of the Class A shares of each series.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
___ day of _________, 1995.
---------------------------------
Sharon K. Pappas, Vice President
Attest: ---------------
Sheryl Strauss
Assistant Secretary
The undersigned, Vice President of Waddell & Reed Funds, Inc. who executed
on behalf said Corporation the foregoing Articles Supplementary, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles Supplementary to be the act of said
Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
WADDELL & REED FUNDS, INC.
By: --------------------------
Sharon K. Pappas, Vice President
Ex-99.B2-wrbylaw
WADDELL & REED FUNDS, INC.
BY-LAWS
(as Amended)
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of June in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which the election of directors is not required to be acted upon
under the Investment Company Act of 1940.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called at by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid, and addressed to him at his address as it appears upon the
books of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of a majority of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at
such meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
eleven Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each director shall hold office until the annual
meeting of stockholders of the Corporation next succeeding his election or until
his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board; may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. No Director shall receive any
stated salary or fees from the Corporation for his services as such Director if
such Director is, otherwise than by reason of being such Director, affiliated
(as such term is defined in the Investment Company Act of 1940) with the
Corporation or with any investment adviser of the Corporation. Except as
provided in the preceding sentence, Directors shall be entitled to receive such
compensation from the Corporation for their services as may from time to time be
voted by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
MISCELLANEOUS
Section 1. Custodianship. All cash and securities owned by the
Corporation shall be held by one or more banks or trust companies of good
standing, each having a capital, surplus and undivided profits aggregating not
less than two million ($2,000,000), provided such a bank or trust company can be
found ready and willing to act. Upon the resignation or inability to serve of
any such bank or trust company the Corporation shall (i) use its best efforts to
obtain a qualified successor, (ii) require the cash and securities of the
Corporation held by such bank or trust company to be delivered directly to the
successor, and (iii) in the event that no qualified successor can be found,
submit to the holders of the shares of the capital stock of the Corporation at
the time outstanding and entitled to vote, before permitting delivery of such
cash and securities to anyone other than a qualified successor, the question
whether the Corporation shall be dissolved and liquidated or shall function
without a qualified bank of trust company selected by it, such assets to be held
subject to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article VII.
Nothing herein contained, however, shall prevent the termination of any
agreement between the Corporation and any such bank or trust company by the
Corporation at the discretion of the Board of Directors, and any such agreement
shall be terminated upon the affirmative vote of the holders of a majority of
all the shares of the capital stock of the Corporation at the time outstanding
and entitled to vote.
Section 2. Certain Transactions. The Corporation shall not purchase or
sell any securities (other than stock which may be issued by the Corporation)
from or to any of the following acting as principals and shall not make any loan
to any of the following: (i) any officer or director of the Corporation; (ii)
any person or organization furnishing managerial or supervisory services to the
Corporation; or (iii) any officer, director or partner of any person or
organization furnishing such managerial or supervisory services.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Except as set forth below, the By-Laws of the Corporation may be altered,
amended, added to or repealed by the stockholders or by majority vote of the
entire Board of Directors; but any such alteration, amendment, addition or
repeal of the By-Laws by action of the Board of Directors may be altered or
repealed by the stockholders. Article VII may be altered, amended or repealed
only by the stockholders.
<PAGE>
Ex-99.B8-wrca
CUSTODIAN AGREEMENT
Dated as of April 24, 1992
Between
UNITED MISSOURI BANK, n.a.
and
WADDELL & REED FUNDS, INC.
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public
Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 24th day of April, 1992 between Waddell & Reed
Funds, Inc. (the "Fund") and United Missouri Bank, n.a. (the "Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right of
set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the Custodian
shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an approved Foreign
Sub-Subcustodian in such country; and upon the receipt of Special Instructions,
the Custodian shall, or shall cause the Domestic Subcustodian to, appoint or
approve any Person (as hereinafter defined) designated by the Fund in such
Special Instructions, to hold such security or other Asset. (Any Person
appointed or approved as a sub-subcustodian pursuant to this Section 4.02(b) is
hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to open-
end management investment companies under the provisions of the 1940 Act; and
(ii) the execution, delivery and performance by the Custodian of this Agreement
are (w) within its power (x) have been duly authorized by all necessary action,
and (y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
Waddell & Reed Funds, Inc.
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
WADDELL & REED FUNDS, INC. UNITED MISSOURI BANK, n.a.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
WADDELL & REED FUNDS, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of April 24, 1992
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a. CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, Brazil BOVESPA, CLC
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. None
Denmark Den Danske Bank VP
Finland Union Bank of Finland Securities Association
France Banque Indosuez SICOVAM; Banque De
France
Germany Berliner Handels Und Frankfurter Bank KASSENVEREIN
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
India Citibank, N.A., Bombay None
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities
Depository Corporation
(KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara
Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De
Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. None
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. TvS, Central Bank of
Turkey
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
WADDELL & REED FUNDS, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of April 24, 1992
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at
the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of Euroclear issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-wrssa
SHAREHOLDER SERVICING AGREEMENT
(As amended and restated)
THIS AGREEMENT, made as of the 1st day of November, 1992, by and between
WADDELL & REED FUNDS, INC. and Waddell & Reed Services Company (the "Agent"), as
amended and restated as of December 2, 1995,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder and includes
shares subject to instructions by the shareholder with respect to periodic
redemptions and/or reinvestment in additional shares of any dividends payable on
said shares. An account does not include shares held under a plan or program
issued by a unit investment trust for which Waddell & Reed, Inc. was or is the
depositor or sponsor;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement;
(iv) costs for special reports or information furnished on request pursuant to
this Agreement and not specifically required by the Agent by Paragraph 3 of this
Agreement; and (v) reasonable costs and expenses incurred by the Agent in
connection with the duties of the Agent described in Paragraph (3)(1)(i). In
addition, the Company agrees to promptly pay over to the Agent any fees or
payment of charges it may receive from a shareholder for services furnished to
the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's facilities in accordance with reasonable procedures at the
frequency necessary to assure proper administration of the Agreement. The Agent
will cooperate with the Company's auditors or representatives of appropriate
regulatory agencies and furnish all reasonably requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
WADDELL & REED FUNDS, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.0208 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015195B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $17,500,000
Audit Expense 500,000
On Premises 17,500,000
In Transit 17,500,000
Forgery or Alteration 17,500,000
Securities 17,500,000
Counterfeit Currency 17,500,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 17,500,000
Total Limit 17,500,000
Directors and Officers/ 87015195D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
<PAGE>
Ex-99.B9-wrasa
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, made as of the 31st day of August, 1992, by and between
Waddell & Reed Funds, Inc. (the "Fund"), a Maryland corporation and Waddell &
Reed Services Company ("Agent"), a Missouri corporation,
WITNESSETH:
WHEREAS, the Fund wishes to appoint the Agent to be its Accounting Services
Agent upon and subject to the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
A. Appointment of the Agent as Accounting Services Agent for the Fund;
Acceptance.
(1) The Fund hereby appoints the Agent to act as Accounting Services
Agent for the Fund upon and subject to the terms and provisions of this
Agreement.
(2) Agent hereby accepts the appointment as Accounting Services Agent
for the Fund and agrees to act as such upon and subject to the terms and
provisions of this Agreement.
B. Duties of the Agent.
The Agent shall perform such duties as set forth in this Paragraph B
as agent for and on behalf of the Fund.
(1) Agent shall provide bookkeeping and accounting services and
assistance by providing to the Fund the necessary personnel and facilities to
maintain the Fund's portfolio records and general accounting records, to price
daily the value of shares of the Fund, and with the assistance and advice of the
Fund's attorneys and independent accountants, to prepare or assist the Fund's
attorneys and independent accountants to prepare, as may be applicable, reports
required to be filed by the Fund with regulatory agencies including the
preparation of proxy statements, prospectuses, shareholder reports and other
reports as required by law.
(2) Agent shall maintain and keep current the accounts, books,
records, and other documents relating to the Fund's financial and portfolio
transactions as may be required by rules and regulations of the Securities and
Exchange Commission adopted under Section 31(a) of the Investment Company Act of
1940 as amended (the "Act").
(3) Agent shall cause the subject records of the Fund to be
maintained and preserved pursuant to the requirements under the Act.
(4) In pricing daily the value of shares of the Fund, Agent may make
arrangements to and obtain the value of portfolio securities from pricing
services or quotation services that are compensated by the Fund directly or
indirectly through the placement of portfolio transactions with broker-dealers
who provide such valuation or quotation services to the Agent.
(5) The Agent shall maintain duplicate copies of, or information from
which copies of, the records necessary to the preparation of the Fund's
financial statements and valuations of its assets may be reconstructed. Such
duplicate copies or information shall be maintained at a location other than
where the Agent performs its normal duties hereunder so that in the event the
records established and maintained pursuant to the foregoing provisions of this
Section B are damaged or destroyed, the Agent shall be able to provide the
bookkeeping and accounting services and assistance specified in this Section B.
(6) In the event any of the Agent's facilities or equipment necessary
for the performance of its duties hereunder is damaged, destroyed or rendered
inoperable by reason of fire, vandalism, riot, natural disaster or otherwise,
Agent will use its best efforts to restore all services hereunder to the Fund
and will not seek from the Fund additional compensation to repair or replace
damaged or destroyed facilities or equipment. The Agent shall also make and
maintain arrangements for emergency use of alternative facilities for use in the
event of the aforesaid destruction of or damage to its facilities.
C. Compensation of the Agent.
The Fund agrees to pay to the Agent for its services under this
Agreement, an amount payable on the first day of the month as shown on the
following table pertinent to the average daily net assets of the Fund during the
prior month:
Fund's Average Daily Net Asset for Monthly Fee
the Month
$ 0 - $ 10 million $ 0
$ 10 - $ 25 million $ 833
$ 25 - $ 50 million $ 1,667
$ 50 - $ 100 million $ 2,500
$100 - $ 200 million $ 3,333
$200 - $ 350 million $ 4,167
$350 - $ 550 million $ 5,000
$550 - $ 750 million $ 5,833
$750 - $ 1.0 billion $ 7,083
$1.0 billion and over $ 8,333
D. Right of Fund to Inspect, and Ownership of Records.
The Fund will have the right under this Agreement to perform on-site
inspection of records and accounts, and audits directly pertaining to the Fund's
accounting and portfolio records maintained by the Agent hereunder at the
Agent's facilities. The Agent will cooperate with the Fund's independent
accountants or representatives of appropriate regulatory agencies and furnish
all reasonably requested records and data. Agent acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund all
such records promptly on request.
E. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel, facilities and equipment as well as the accurate performance of all
services to be performed by it hereunder within, at a minimum, the time
requirements of any applicable statutes, rules or regulations and in conformity
with the Fund's Articles of Incorporation, Bylaws and representations made in
the Fund's current registration statement as filed with the Securities and
Exchange Commission.
The Agent shall not be responsible for, and the Fund agrees to
indemnify the Agent for, any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Fund hereunder; (ii) for any delay, error or omission by reason of circumstances
beyond its control, including acts of civil or military authority, national
emergencies, labor difficulties (except with respect to the Agent's employees),
fire, mechanical breakdown beyond its control, flood catastrophe, acts of God,
insurrection, war, riots or failure beyond its control of transportation,
communication or power supply; or (iii) for any action taken or omitted to be
taken by the Agent in good faith in reliance on the accuracy of any information
provided to it by the Fund or its directors or in reliance on any advice of
counsel who may be internally employed counsel or outside counsel for the Fund
or advice of any independent accountant or expert employed by the Fund with
respect to the preparation and filing of any document with a governmental agency
or authority.
In order for the rights to indemnification to apply, it is understood
that if in any case the Fund may be asked to indemnify or hold the Agent
harmless, the Fund shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Fund promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Fund. The Fund shall have the option to defend the
Agent against any claim which may be the subject of this indemnification and, in
the event that the Fund so elects, it will so notify the Agent, and thereupon
the Fund shall take over complete defense of the claim, and the Agent shall
sustain no further legal or other expenses in such situation for which the Agent
shall seek indemnification under this paragraph. The Agent will in no case
confess any claim or make any compromise in any case in which the Fund will be
asked to indemnify the Agent except with the Fund's prior written consent.
F. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one (1) year and from year-to-year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended, or a new agreement covering the same topics between the Fund and the
Agent may be entered into only if the terms of this Agreement, such continuance,
the terms of such amendment or the terms of such new agreement have been
approved by the Board of Directors of the Fund, including the vote of a majority
of the directors who are not "interested persons," as defined in the Act, of
either party to this Agreement, the agreement to be continued, amendment or new
agreement, cast in person at a meeting called for the purpose of voting on such
approval. Such a vote is hereinafter referred to as a "disinterested director
vote."
Any disinterested director's vote shall, in favor of continuance,
amendment or execution of a new agreement, include a determination that (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be performed
under the Agreement, the Agreement as amended, new agreement or agreement to be
continued, are services required for the operation of the Fund; (iii) the Agent
can provide services, the nature and quality of which are at least equal to
those provided by others offering the same or similar services; and (iv) the
fees for such services are fair and reasonable in the light of the usual and
customary charges made by others for services of the same nature and quality.
Nothing herein contained shall prevent any disinterested director vote
from being conditioned on the favorable vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Fund.
G. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Fund at least one hundred twenty (120) days' written
notice (which notice may be waived by the Fund) and may be terminated by the
Fund at any time without penalty upon giving the Agent at least sixty (60) days'
written notice (which notice may be waived by the Agent), provided that such
termination by the Fund shall be directed or approved by the vote of a majority
of the Board of Directors of the Fund in office at the time or by the vote of
the holders of a majority (as defined in or under the Act) of the outstanding
shares of the Fund.
(2) On termination, the Agent will deliver to the Fund or its
designee all files, documents and records of the Fund used, kept or maintained
by the Agent in the performance of its services hereunder, including such of the
Fund's records in machine readable form as may be maintained by the Agent, as
well as such summary and/or control data relating thereto used by or available
to the Agent.
(3) In addition, on such termination or in preparation therefore at
the request of the Fund and at the Fund's expense, the Agent shall provide, to
the extent that its capabilities then permit, such documentation, personnel and
equipment as may be reasonably necessary in order for a new agent or the Fund to
fully assume and commence to perform the agency functions described in this
Agreement with a minimum disruption to the Fund's activities.
(4) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning defined in
Section 2(a)(4) of the Investment Company Act of 1940 and the rules and
regulations thereunder of the Securities and Exchange Commission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date and year first above written.
Waddell & Reed Funds, Inc.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
ATTEST:
By:/s/Sharon K. Pappas
- ----------------------
Sharon K. Pappas, Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
------------------------
Robert L. Hechler
ATTEST:
By:/s/Rodney O. McWhinney
- -------------------------
Rodney O. McWhinney, Secretary
EX-99.B9-WRappcb
Waddell & Reed, Inc. [ Division Office Stamp]
P.O. Box 29217 WADDELL & REED FUNDS
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
________________________________________________________________________________
REGISTRATION TYPE (one only) Trans Code: __________ Date Transmitted: ________
________________________________________________________________________________
NON RETIREMENT PLAN
[] Single Name [] Joint Tenants W/Right of Survivorship [] Declaration of
Trusts Revocable
[] Uniform Gifts (Transfers) To Minors [] Other: ______ (Attach CUF022)
________________________________________________________________________________
RETIREMENT PLAN See Retirement Plan and Custody Agreement for annual custodian
fees
[] Individual IRA [] Keogh Participant (Profit Sharing Plan)
[] Spousal IRA [] Keogh Participant (Money Purchase Plan)
[] Rollover (Qual. plan lump sum distr.) (For a new plan, attach MRP1177)
[] Simplified Pension Plan (SEP/SPP)
(For a new plan, attach MRP1206)
[] TSA/457 Employer's Name _____________________________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
(Attach Subscription Agreement and Confidential Questionnaire CRP1186)
Fund to receive partnership distributions: __________________________________
Fund Name
NOTE: If Partnership not available W&R is authorized to place investment in
United Cash Management (a fund of the United Group of Funds) until next
partnership is available.
________________________________________________________________________________
REGISTRATION []NEW ACCOUNT or []NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
Individual Name (exactly as desired) If spousal IRA, name of working spouse
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
______________________ ______________
Month Day Year Relationship (For grouping purposes)
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only.
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________ _________________________ ____________ ______%
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
101 - W&R Total Return 102 - W&R Growth 103 - W&R Limited-Term Bond
106 - W&R Asset Strategy
104 - W&R Municipal Bond 105 - W&R International Growth
(not available for Retirement Plans)
________________________________________________________________________________
OPEN ACCOUNT
If Retirement
Plan
FUND Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $______________ ______ 19________ __________
[][][] $______________ ______ 19________ __________
[][][] $______________ ______ 19________ __________
[][][] $______________ ______ 19________ __________
[][][] $______________ ______ 19________ __________
Total $______________
Monthly Div./C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $______________ [] [] [] ___________
[] $______________ [] [] [] ___________
[] $______________ [] [] [] ___________
[] $______________ [] [] [] ___________
[] $______________ [] [] [] ___________
$______________
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **RR=Reinvest Div/Cap Gain CC=Cash
Div/Cap Gain CR=Cash Div/Reinvest Cap Gain
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Gross Family Income: $___ 2. Taxable Income $___ 3. Number of Dependents ____
4. Occupation: ___________________________ 5. Employer Name: ___________________
6. Employer Address: ___________________________________________________________
7. Savings and Liquid Assets: $__ 11. Investment Objectives(mark all that
apply):
8. Other Assets (excluding home, furnishings, cars): $____ [] Retirement Savings
9. Net Worth (Assets minus liabilities): $__________ [] Reserves
10. Are you associated with an NASD Member? Yes __ No __ [] Children's College
12. Special Remarks/Considerations: _____________________ [] Income
_____________________________________________________ [] Other needs/goals
(specify in Special
Remarks)
13. Residence Address __________________________________________________________
Street City State Zip
(if different from
Mailing address on reverse side)
________________________________________________________________________________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Fund.
* I (we) understand that there may be a deferred sales charge on redemption of
shares held less than 4 years.
* If purchasing an IRA, I (we) have read the Retirement Plan and Custody
Agreement and agree to terms and conditions set forth therein, and do hereby
establish the Individual Retirement Plan.
* Under the penalties of perjury, I certify that the social security number or
other taxpayer identification number shown on reverse side is correct (or I am
waiting for a number to be issued to me) and (strike the following if not
true) that I am not subject to backup withholding because (a) I am exempt from
backup withholding, or (b) I have not been notified by the IRS that I am
subject to backup withholding as a result of failure to report all interest
and dividends, or (c) the IRS has notified that I am no longer subject to
backup withholding.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
____________________________ _______________________________ ___________________
(Signature) (Printed Name) (Title, if any)
____________________________ _______________________________ ___________________
(Signature) (Printed Name) (Title, if any)
____________________________ _______________________________ ___________________
(Signature) (Printed Name) (Title, if any)
_________________________ _________________________________________
Date Representative Signature
[OSJ: (H.O. Use) ] [][][][]][]
Representative Number
Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody
Agreement:
By:___________________________________________
Fiduciary Trust Company Authorized Signature
Check any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Partnership Subscription Agreement
[] Partnership Confidential Questionnaire (CRP1186)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications _________________________________________________
[] Check enclosed # ________________________________________________________
[] Other ___________________________________________________________________
EX-99.B9-wrappcy
UNITED FUND GROUP OF FUNDS INSTITUTIONAL
WADDELL & REED FUNDS PURCHASE
APPLICATION
INSTRUCTIONS You can open an account by calling 1-800-366-2520 or by mailing
an application and check to Waddell & Reed, Inc., 6300 Lamar, Shawnee Mission,
Kansas 66202 Date:
Fill in where applicable 6300 Lamar, Shawnee Mission, Kansas 66202.
Account Name ___________________________________________________________________
Tax I.D. No. _________________________________
Registration
Name _______________________________________________________________or
______________________________________________________________________
Number and Street _____________________________________________________
Soc. Sec. No. _________________________________
FULL ADDRESS
Please fill in completely, including telephone number.
City______________State _________Zip Code _________
Telephone _________________________________________________ Citizen of: []
U.S. [] Other (specify) ___________________________
[] Please establish an account(s) as follows:
INITIAL Dividends and capital
INVESTMENT(S): gains to be paid in:*
Account No. Assigned _________________Amount Shares Cash
FUND(S) TO BE PURCHASED
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
___________________________________________________________________
$________ [] []
Total amount $________________ *If no election is checked,
all payments will be made in shares.
I (We) hereby authorize Waddell & Reed Services Co. to act upon instructions
received by telephone to have amounts withdrawn from my organization's
account(s) in the Portfolio(s) and wired or mailed to the bank account designed
below.
I (We) hereby ratify any such instructions and agree that none of the Fund(s),
Waddell & Reed, Inc. nor Waddell & Reed Services will be liable for any loss,
liability, cost or expense for acting upon such instructions in accordance with
the procedures set forth in the Prospectus.
EXPEDITED
REDEMPTION Note: The indicated bank should be a member of the Federal
Reserve System.
SERVICE
Please fill in completely.
Name of Bank
_____________________________________________________________________
Bank A.B.A. No. _________________________
Number and Street
____________________________________________________________________________
City ___________________________________________________ State
_________________________________ Zip Code ___________________
Account Name __________________________________________________________ Account
No. ________________________________________
TELEPHONE This account will be established with a telephone exchange
EXCHANGE privilege which will authorize Waddell & Reed Services Co. to act upon
PRIVILEGE instructions by telephone to exchange Fund shares held in my (our)
account for shares of other Funds eligible under the Exchange Privilege to be
held in an identically registered account(s) (see Prospectus for details),
unless you check the box on the left to indicate your rejection of this service.
Check box at the right
if this service is NOT requested. I (We) hereby ratify any instructions given
pursuant to this authorization and agree that none of the funds, Waddell & Reed,
Inc. nor Waddell & Reed Services Company will be liable for any loss, liability,
cost or expense for acting upon instructions believed to be genuine.[]
Under penalties of perjury, I (we) certify that the number shown on this
application is the correct Tax Identification Number of my organization (or my
correct Social Security Number if the account is for my personal use) and that
the organization is not (I am not) subject to backup withholding either because
if it has not (I have not) been notified that it is (I am) subject to backup
withholding as a result of a failure to report all interest, dividends or
capital gains, or the Internal Revenue Service has notified it (me) that it is
no (I am no) longer subject to backup withholding. The undersigned certify that
I (we) have full authority and legal capacity to purchase shares of the Fund and
affirm that I (we) have received a current Prospectus and agree to be bound by
its terms.
AUTHORIZED
SIGNATURE(S)
Complete Corporate resolution on
reverse side.
1.___________________ 2. ___________________________
Authorized Signature Authorized Signature
_____________________ ____________________________
Title Title
3. _________________ 4. ___________________________
Authorized Signature Authorized Signature
____________________ ____________________________
Title Title
Corporate Resolution
IT WILL BE NECESSARY FOR YOU TO PROVIDE A CERTIFIED COPY OF A CORPORATE
RESOLUTION OR OTHER CERTIFICATE OF AUTHORITY TO AUTHORIZE WITHDRAWALS. THE
SAMPLES BELOW MAY BE USED FOR THIS PURPOSE OR YOU MAY USE YOUR OWN. IT IS
UNDERSTOOD THAT THE FUND(S) WADDELL & REED, INC. AFFILIATES AND ITS CUSTODIAN
BANK, MAY RELY UPON THESE AUTHORIZATIONS UNTIL REVOKED OR AMENDED BY WRITTEN
NOTICE DELIVERED TO THE FUND(S) BY REGISTERED MAIL.
CERTIFIED COPY OF RESOLUTION (Corporation or Association)
The undersigned hereby certifies and affirms that he is duly elected (title)
__________________________________________ of (corporate name)
_________________________ a corporation organized under the laws of (the State
of) __________________________ and that the following is a true and correct copy
of a resolution adopted by the corporation's Board of Directors at a meeting
duly called and held on (date) ________________________________.
RESOLVED, that any (enter number required to act) _________ of the corporation's
following identified officers (enter titles only)
____________________________________
____________________________________________________________________ are
authorized to execute investment applications with the United Fund Group/W&R
Funds and any Fund investment accounts in the name of the corporation; to invest
such funds of the corporation in shares issued by one or more United Fund/W&R
Funds ("Fund Shares"), as they deem appropriate; and to issue instructions
(including the execution of money fund drafts, if applicable) pertaining to the
redemption, exchange or transfer of Fund Shares.
FURTHER RESOLVED, that each shall be held harmless and fully protected in
relying from time to time upon any certifications by the secretary or any
assistant secretary of the corporation as to the name of the individuals
occupying the above identified offices, and in acting in reliance upon the
foregoing resolutions, until actual receipt by them of a certified copy of a
resolution of the Board of Directors of the corporation modifying or revoking
any or all such resolutions.
The undersigned further certifies that the following individuals occupy the
offices designated. (Attach additional list if necessary.)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
x______________________________________________________________________
Name/Title (please print or type) (Signature)
___________________________________________________________________
___________________________________________________
Corporate Name CORPORATE SEAL (Date)
Certified from Minutes: _______________________________________________
Name and Title
CONFIDENTIAL DATA (Must be completed on New Accounts/New Products)
1. Annual Income: $_______________________________ 2. Taxable Income:
$________
3. Total Investment Assets: ________________________________________________
4. Other Assets: _______________________________________
5. Net Worth (Assets minus Liabilities):
________________________________________________________________________________
________________
6. Investment Objectives (mark all that apply)6. [] Retirement Needs h Reserves
6. [] Other needs/goals (specify in Special Remarks)
7. Special Remarks/Considerations:
________________________________________________________________________________
________________________________
INITIAL INVESTMENT INSTRUCTIONS
HOW TO INVEST
By Federal Funds Wire By Mail
Obtain account number from the Fund. Complete Purchase Application
Telephone toll free: 1-800-366-2520 Make check payable to Waddell & Reed, Inc.
Instruct bank to transmit investment by Federal funds wire to: u
Mail application and check to:
United Missouri Bank Waddell & Reed Services Co.,
Kansas City, Missouri 6300 Lamar
ABA Number: 101000695 Shawnee Mission, KS 66202
W&R Underwriter Account
#0007978
FBO _____________________________________
Fund Acct # _______________________________
FUND CODES
737 - United Accumulative - Class Y 763 - United Municipal High
Income - Class Y
785 - United Asset Strategy - Class Y 748 - United New Concepts -
Class Y
738 - United Bond - Class Y 783 - United Retirement Shares
- - Class Y
745 - United Continental Income - Class Y 736 - United Science and
Technology - Class Y
744 - United Gold & Government - Class Y 747 - United Vanguard -Class Y
754 - United Government Securities - Class Y 716 - W&R Asset Strategy -
Class Y
746 - United High Income - Class Y 715 - W&R International Growth
- - Class Y
749 - United High Income II - Class Y 712 - W&R Growth - Class Y
735 - United Income - Class Y 713 - W&R Limited-Term Bond -
Class Y
739 - United International Growth - Class Y 714 - W&R Municipal Bond -
Class Y
761 - United Municipal Bond - Class Y 711 - W&R Total Return Class Y
EX-99.B11-wrconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May 5,
1995, relating to the financial statements and financial highlights of Waddell &
Reed Funds, Inc., which appears in such Statement of Additional Information, and
to the incorporation by reference of our report into the Class B Shares
Prospectus and the Class Y Shares Prospectus which constitute part of this
Registration Statement. We also consent to the reference to us under the
heading "Custodial and Auditing Services" in such Statement of Additional
Information, to the reference to us under the heading "Financial Highlights" in
the Class B Shares Prospectus and to the references to us under the heading
"Independent Accountants" in the Class B Shares Prospectus and the Class Y
Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
October 3, 1995
EX-99.B15-wrdspcb
WADDELL & REED FUNDS, INC.
DISTRIBUTION AND SERVICE PLAN
FOR CLASS B SHARES
This Plan is adopted by Waddell & Reed Funds, Inc. (the "Company") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act") to
provide for payment by the Company of certain expenses in connection with the
distribution of the Company's Class B shares and the service and maintenance of
Class B shareholder accounts. Payments under the Plan are to be made to Waddell
& Reed, Inc. ("W&R") which serves as the principal underwriter for the Company
under the terms of an underwriting agreement (the "Agreement") pursuant to which
it shall offer and sell the Class B shares of each series (each a "Fund") of the
Company at net asset value.
Distribution Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .75 of 1% of each Fund's average net assets of its
Class B shares as a "distribution fee" to finance the distribution of that
Fund's Class B shares payable to W&R daily or at such other intervals as the
board of directors may determine.
Service Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .25 of 1% of each Fund's average net assets of its
Class B shares as a "service fee" to finance shareholder servicing by W&R or its
affiliated companies to encourage and foster the maintenance of shareholder
accounts of the particular Fund's Class B shares. The amounts shall be payable
to W&R daily or at such other intervals as the board of directors may determine.
NASD Definition
For purposes of this Plan, the distribution fee may be considered as a sales
charge that is deducted from the net assets of the Class B shares of each Fund
and does not include the service fee. The service fee may be considered a
payment made by the Company with respect to each Fund for personal service
and/or maintenance of Class B shareholder accounts, provided, however, that if
the National Association of Securities Dealers, Inc. ("NASD") adopts a
definition of "service fee" for purposes of Article III, S26(b) of its Rules of
Fair Practice that differs from the definition of "service fee" as used herein,
or if the NASD adopts a related definition intended to define the same concept,
the definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and the service fee paid to it under this Plan
with respect to the Class B shares of each Fund and the purposes for which such
expenditures were made with respect to the Class B shares of each Fund.
Approval of Plan
This Plan shall not become effective as to a Fund until it has been approved by
a vote of at least a majority of the outstanding shares of that Fund (as defined
in the Act) affected by this Plan and by a vote of the board of directors of the
Company and by the directors who are not interested persons of the Company and
have no direct or indirect financial interest in the operation of the Plan or
any agreement related to this Plan (other than as directors or shareholders of
the Company) ("independent directors") cast in person at a meeting called for
the purpose of voting on such Plan. Subject to such approvals, this Plan shall
become effective the date the initial Agreement becomes effective. The initial
Agreement shall become effective as may be determined by the parties, provided,
however, that it is approved in accordance with the requirements of S15 of the
Act and Rule 12b-1 under the Act.
Continuance
This Plan shall continue in effect as to each Fund for a period of one (1) year
and thereafter from year-to-year only so long as such continuance is approved by
the directors, including the independent directors, as specified hereinabove for
the adoption of a Plan by the directors and independent directors.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors as to any Fund or by a vote of the majority of the
outstanding Class B shares of that Fund without penalty. On termination, the
payment of all distribution and service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any expenditure it has made or may
make to distribute Fund Class B shares or service Class B shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution or services without approval by the Class B shareholders of the
affected Fund, and all material amendments of this Plan must be approved in the
manner prescribed for the adoption of the Plan by the directors and independent
directors as provided hereinabove. The distribution and service fees may,
however, be reduced by action of the board of directors without shareholder
approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of the Plan, agreements and reports made pursuant to this Plan shall be
preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B15-wrdspcy
WADDELL & REED FUNDS, INC.
DISTRIBUTION AND SERVICE PLAN
FOR CLASS Y SHARES
This Plan is adopted by Waddell & Reed Funds, Inc. (the "Company") pursuant to
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Act") to
provide for payment by the Company of certain expenses in connection with the
distribution of the Company's Class Y shares and the service and maintenance of
Class Y shareholder accounts. Payments under the Plan are to be made to Waddell
& Reed, Inc. ("W&R") which serves as the principal underwriter for the Company
under the terms of an underwriting agreement pursuant to which it shall offer
and sell the Class Y shares of each series (each a "Fund") of the Company at net
asset value.
Distribution Fee
With respect to each Fund, subject to the limitation on total plan fees set
forth below, the Company is authorized to pay to W&R an amount not to exceed on
an annual basis .25 of 1% of each Fund's average net assets of its Class Y
shares as a "distribution fee" to finance the distribution of that Fund's Class
Y shares payable to W&R daily or at such other intervals as the board of
directors may determine.
Service Fee
With respect to each Fund, subject to the limitation on total plan fees set
forth below, the Company is authorized to pay to W&R an amount not to exceed on
an annual basis .25 of 1% of each Fund's average net assets of its Class Y
shares as a "service fee" to finance shareholder servicing by W&R or its
affiliated companies to encourage and foster the maintenance of shareholder
accounts of the particular Fund's Class Y shares. The amounts shall be payable
to W&R daily or at such other intervals as the board of directors may determine.
Limitation on Total Plan Fees
With respect to each Fund, the Company is authorized to pay both a distribution
fee and a service fee to W&R provided that the total amount of fees paid to W&R
pursuant to this Plan shall not exceed on an annual basis .25 of 1% of the
average net assets of that Fund's Class Y shares.
NASD Definition
For purposes of this Plan, the distribution fee may be considered as a sales
charge that is deducted from the net assets of the Class Y shares of each Fund
and does not include the service fee. The service fee may be considered a
payment made by the Company with respect to each Fund for personal service
and/or maintenance of Class Y shareholder accounts, provided, however, that if
the National Association of Securities Dealers, Inc. ("NASD") adopts a
definition of "service fee" for purposes of Article III, S26(b) of its Rules of
Fair Practice that differs from the definition of "service fee" as used herein,
or if the NASD adopts a related definition intended to define the same concept,
the definition of "service fee" as used herein shall be automatically amended to
conform to the NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Company and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and the service fee paid to it under this Plan
with respect to the Class Y shares of each Fund and the purposes for which such
expenditures were made with respect to the Class Y shares of each Fund.
Approval of Plan
This Plan shall not become effective as to a Fund until it has been approved by
a vote of at least a majority of the outstanding Class Y shares of that Fund (as
defined in the Act) and by a vote of the board of directors of the Company and
by the directors who are not interested persons of the Company and have no
direct or indirect financial interest in the operation of the Plan or any
agreement related to this Plan (other than as directors or shareholders of the
Company) ("independent directors") cast in person at a meeting called for the
purpose of voting on such Plan.
Continuance
This Plan shall continue in effect as to each Fund for a period of one (1) year
and thereafter from year-to-year only so long as such continuance is approved by
the directors, including the independent directors, as specified hereinabove for
the adoption of a Plan by the directors and independent directors.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors as to any Fund or by a vote of the majority of the
outstanding Class Y shares of that Fund without penalty. On termination, the
payment of all distribution and service fees shall cease, and the Company shall
have no obligation to W&R to reimburse it for any expenditure it has made or may
make to distribute Fund Class Y shares or service Class Y shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution or services without approval by the Class Y shareholders of the
affected Fund, and all material amendments of this Plan must be approved in the
manner prescribed for the adoption of the Plan as provided hereinabove. The
distribution and service fees may, however, be reduced by action of the board of
directors without shareholder approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Company shall be committed to the discretion
of the directors who are not interested persons of the Company.
Records
Copies of the Plan, agreements and reports made pursuant to this Plan shall be
preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B18-wrmcp
WADDELL & REED FUNDS, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for each Fund ("Fund") comprising Waddell & Reed Funds, Inc.
This multiple class structure was approved by the Board of Directors of Waddell
& Reed Funds, Inc. on February 8, 1995, under an order of exemption issued by
the Securities and Exchange Commission on January 11, 1995. This Plan describes
the classes of shares of stock of the Fund -- Class B shares and Class Y shares
- -- offered to the public on or after December 2, 1995 ("Implementation Date").
General Description of the Classes:
Class B Shares. Class B shares will be sold subject to a contingent
deferred sales charge, which will be imposed on redemption proceeds. The
maximum contingent deferred sales charge will be 3.0% and will decline 1% per
year after the first full calendar year after investment to 0% after four years.
Class B shares also will be subject to a distribution and service fee charged
pursuant to a Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1") that provides for a maximum fee of 1.00% of the average annual
net assets of the Class B shares of a Fund.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and will not be subject to a contingent deferred sales charge. Class Y
shares will be subject to a maximum 12b-1 fee of 0.25% of the average annual net
assets of the Class Y shares of a Fund. Class Y shares are designed for
institutional investors and will be available for purchase by: (i) participants
of employee benefit plans established under section 403(b) or section 457, or
qualified under section 401, including 401(k) plans, of the Internal Revenue
Code of 1986, as amended ("Code"), when an unaffiliated third party provides
certain administrative, distribution and/or other support services to the plan
and the plan holds the shares in an omnibus account on the Fund's records; (ii)
banks, trust institutions and investment fund administrators investing for their
own accounts or for the accounts of their customers where such investments for
customer accounts are held in an omnibus account on the Fund's records and to
which entity an unaffiliated third party provides certain administrative
distribution and/or other support services; (iii) government entities or
authorities and corporations where the investment is $1 million or more.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class B shares
and Class Y shares of a Fund differ with respect to the applicable shareholder
servicing fees. Class B shares pay a monthly shareholder servicing fee of
$1.0208 for each Class B shareholder account which was in existence during the
prior month, plus $0.30 for each Class B account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
The shareholder servicing fees and other expenses listed above which are
attributable to a particular Class are charged directly to the net assets of the
particular Class and, thus, are borne on a pro rata basis by the outstanding
shares of that Class.
Certain expenses that may not be attributable to a particular Class are
allocated based on the relative daily net assets of that Class.
Exchange Privileges:
Class B shares of a Fund may be exchanged for corresponding shares of any
other fund in Waddell & Reed Funds, Inc.
Class Y shares may be exchanged for Class Y shares of any other fund in
Waddell & Reed Funds, Inc.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and a
Fund's multiple class structure.
October 3, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 95,167,673
<INVESTMENTS-AT-VALUE> 104,518,584
<RECEIVABLES> 959,207
<ASSETS-OTHER> 557
<OTHER-ITEMS-ASSETS> 4,922
<TOTAL-ASSETS> 105,483,270
<PAYABLE-FOR-SECURITIES> 451,478
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341,057
<TOTAL-LIABILITIES> 792,535
<SENIOR-EQUITY> 82,257
<PAID-IN-CAPITAL-COMMON> 96,142,360
<SHARES-COMMON-STOCK> 8,225,679
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (884,793)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,350,911
<NET-ASSETS> 104,690,735
<DIVIDEND-INCOME> 1,450,943
<INTEREST-INCOME> 261,257
<OTHER-INCOME> 0
<EXPENSES-NET> 1,746,089
<NET-INVESTMENT-INCOME> (33,889)
<REALIZED-GAINS-CURRENT> (393,447)
<APPREC-INCREASE-CURRENT> 6,249,301
<NET-CHANGE-FROM-OPS> 5,821,965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,945,209
<NUMBER-OF-SHARES-REDEEMED> 870,169
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42,955,448
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 599,703
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,746,089
<AVERAGE-NET-ASSETS> 85,190,382
<PER-SHARE-NAV-BEGIN> 11.99
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .74
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.73
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAIN SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 84,918,966
<INVESTMENTS-AT-VALUE> 100,113,302
<RECEIVABLES> 1,236,882
<ASSETS-OTHER> 468
<OTHER-ITEMS-ASSETS> 4,993
<TOTAL-ASSETS> 101,355,645
<PAYABLE-FOR-SECURITIES> 267,615
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 405,102
<TOTAL-LIABILITIES> 672,717
<SENIOR-EQUITY> 59,569
<PAID-IN-CAPITAL-COMMON> 83,616,019
<SHARES-COMMON-STOCK> 5,956,925
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,511
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,806,493
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,194,336
<NET-ASSETS> 100,682,928
<DIVIDEND-INCOME> 43,022
<INTEREST-INCOME> 1,455,978
<OTHER-INCOME> 0
<EXPENSES-NET> 1,492,489
<NET-INVESTMENT-INCOME> 6,511
<REALIZED-GAINS-CURRENT> 2,636,976
<APPREC-INCREASE-CURRENT> 13,371,790
<NET-CHANGE-FROM-OPS> 16,015,277
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 1,599,535
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,125,059
<NUMBER-OF-SHARES-REDEEMED> 365,439
<SHARES-REINVESTED> 105,331
<NET-CHANGE-IN-ASSETS> 57,158,651
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 537,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,492,489
<AVERAGE-NET-ASSETS> 67,047,122
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.90
<EXPENSE-RATIO> 2.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> LIMITED-TERM BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 12,756,721
<INVESTMENTS-AT-VALUE> 12,451,310
<RECEIVABLES> 327,340
<ASSETS-OTHER> 234
<OTHER-ITEMS-ASSETS> 4,016
<TOTAL-ASSETS> 12,782,900
<PAYABLE-FOR-SECURITIES> 306,943
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,191
<TOTAL-LIABILITIES> 364,134
<SENIOR-EQUITY> 12,802
<PAID-IN-CAPITAL-COMMON> 12,785,592
<SHARES-COMMON-STOCK> 1,280,202
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (74,217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (305,411)
<NET-ASSETS> 12,418,766
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 725,279
<OTHER-INCOME> 0
<EXPENSES-NET> 252,503
<NET-INVESTMENT-INCOME> 472,776
<REALIZED-GAINS-CURRENT> (74,217)
<APPREC-INCREASE-CURRENT> (78,479)
<NET-CHANGE-FROM-OPS> 320,080
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 472,776
<DISTRIBUTIONS-OF-GAINS> 9,889
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 466,132
<NUMBER-OF-SHARES-REDEEMED> 420,022
<SHARES-REINVESTED> 47,776
<NET-CHANGE-IN-ASSETS> 747,631
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 64,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 252,503
<AVERAGE-NET-ASSETS> 11,661,171
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> .39
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.70
<EXPENSE-RATIO> 2.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 27,147,029
<INVESTMENTS-AT-VALUE> 26,886,927
<RECEIVABLES> 618,146
<ASSETS-OTHER> 362
<OTHER-ITEMS-ASSETS> 4,738
<TOTAL-ASSETS> 27,510,173
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,091
<TOTAL-LIABILITIES> 76,091
<SENIOR-EQUITY> 26,639
<PAID-IN-CAPITAL-COMMON> 28,320,895
<SHARES-COMMON-STOCK> 2,663,914
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (653,350)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (260,102)
<NET-ASSETS> 27,434,082
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,600,720
<OTHER-INCOME> 0
<EXPENSES-NET> 489,241
<NET-INVESTMENT-INCOME> 1,111,479
<REALIZED-GAINS-CURRENT> (654,808)
<APPREC-INCREASE-CURRENT> 1,079,863
<NET-CHANGE-FROM-OPS> 1,536,534
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,111,479
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 603,090
<NUMBER-OF-SHARES-REDEEMED> 507,544
<SHARES-REINVESTED> 101,809
<NET-CHANGE-IN-ASSETS> 2,473,597
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 140,752
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 489,241
<AVERAGE-NET-ASSETS> 25,222,832
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.30
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> GLOBAL INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 11,061,140
<INVESTMENTS-AT-VALUE> 10,954,730
<RECEIVABLES> 307,177
<ASSETS-OTHER> 234
<OTHER-ITEMS-ASSETS> 1,522
<TOTAL-ASSETS> 11,263,663
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 75,262
<TOTAL-LIABILITIES> 75,262
<SENIOR-EQUITY> 11,951
<PAID-IN-CAPITAL-COMMON> 11,541,594
<SHARES-COMMON-STOCK> 1,195,118
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (268,035)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (97,109)
<NET-ASSETS> 11,188,401
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 658,657
<OTHER-INCOME> 0
<EXPENSES-NET> 244,755
<NET-INVESTMENT-INCOME> 413,902
<REALIZED-GAINS-CURRENT> (205,154)
<APPREC-INCREASE-CURRENT> 203,578
<NET-CHANGE-FROM-OPS> 412,326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 413,902
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 243,352
<NUMBER-OF-SHARES-REDEEMED> 190,297
<SHARES-REINVESTED> 44,248
<NET-CHANGE-IN-ASSETS> 906,092
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 70,373
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 244,755
<AVERAGE-NET-ASSETS> 10,689,536
<PER-SHARE-NAV-BEGIN> 9.37
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> .36
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.36
<EXPENSE-RATIO> 2.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL
STATEMENTS FOR THE PERIOD ENDED AUGUST 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 06
<NAME> W&R ASSET STRATEGY FUND
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 4,699,199
<INVESTMENTS-AT-VALUE> 4,784,022
<RECEIVABLES> 275,565
<ASSETS-OTHER> 18,261
<OTHER-ITEMS-ASSETS> 7,011
<TOTAL-ASSETS> 5,084,859
<PAYABLE-FOR-SECURITIES> 27,036
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 104,399
<TOTAL-LIABILITIES> 131,435
<SENIOR-EQUITY> 4,816
<PAID-IN-CAPITAL-COMMON> 4,844,217
<SHARES-COMMON-STOCK> 481,616
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 18,335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,233
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,823
<NET-ASSETS> 4,953,424
<DIVIDEND-INCOME> 3,364
<INTEREST-INCOME> 37,983
<OTHER-INCOME> 0
<EXPENSES-NET> 19,908
<NET-INVESTMENT-INCOME> 21,439
<REALIZED-GAINS-CURRENT> 1,233
<APPREC-INCREASE-CURRENT> 84,823
<NET-CHANGE-FROM-OPS> 107,495
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,104
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 504,904
<NUMBER-OF-SHARES-REDEEMED> 23,599
<SHARES-REINVESTED> 311
<NET-CHANGE-IN-ASSETS> 4,953,424
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,964
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19,908
<AVERAGE-NET-ASSETS> 2,099,558
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.29
<EXPENSE-RATIO> 2.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
