<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. 4
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 4
WADDELL & REED FUNDS, INC.
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(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
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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)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
__X__ 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, 1994 was filed on May 24, 1994.
<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) ..................... Financial Highlights
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
(c) ..................... About the Investment Principles 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) ..................... Inside Back Cover; 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
7(a) ..................... About the Management and Expenses of the Funds;
Inside Back Cover
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About Your Account
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) ..................... Investment Goals and Policies
(b) ..................... Investment Goals and Policies
(c) ..................... Investment Goals and Policies
(d) ..................... Investment Goals and Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... Directors and Officers; Other Information
(b) ..................... Directors and Officers; Other Information
(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) ..................... Investment Management and Other Services
(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 ........................ Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ Performance Information
(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 dated April
20, 1995. The Statement of Additional Information 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 Statement of
Additional Information is incorporated by reference into this Prospectus and you
will not be aware of all facts unless you read both this Prospectus and the
Statement of Additional Information.
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.
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.
Prospectus
April 20, 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.................................3
Expenses.................................................5
Financial Highlights of Waddell & Reed Funds, Inc........17
Performance..............................................26
Explanation of Terms................................26
About Waddell & Reed.....................................28
About the Investment Principles of the Funds.............29
Investment Goals and Principles.....................29
Securities and Investment Practices and Associated Risks 36
About Your Account.......................................57
Buying Shares.......................................59
Minimum Investments.................................60
Adding to Your Account..............................60
Selling Shares......................................61
Shareholder Services................................66
Personal Service...............................66
Reports........................................66
Exchanges......................................67
Automatic Transactions.........................67
Dividends, Distributions, and Taxes.................69
Distributions..................................69
Taxes..........................................69
About the Management and Expenses of the Funds...........73
WRIMCO and Its Affiliates...........................74
Breakdown of Expenses...............................76
Management Fee.................................77
Other Expenses.................................77
Distribution...................................78
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes six separate series (each a "Fund") of an
open-end, management investment company. Each Fund has different investment
goals and policies. Each of the Funds is a diversified fund.
Goals and Strategies:
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.
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.
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. 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. 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. This Fund invests in securities
issued by companies or governments of any nation. 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.
Asset Strategy Fund seeks high total return with reduced risk over the long
term. This Fund diversifies among stocks, bonds, and short-term instruments,
both in the United States and abroad. 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.
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 Principals."
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 shares of each of the Funds through Waddell & Reed, Inc.
and its account representatives. The price to buy a share of a Fund is the net
asset value of a share of that Fund. A sales charge is not incurred upon
purchase of a Fund, but the 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 shares of each of the Funds.
Redemptions: You may redeem your 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 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.
<PAGE>
Expenses
Total Return Fund
Summary of Expenses
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 0.48%
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses 2.17%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 52
3 years $ 78
5 years $116
10 years $250
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return3 and (2) no redemption at the end of each time period:
1 year $ 22
3 years $ 68
5 years $116
10 years $250
1 The 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.
2 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."
3 Use 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>
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>
Growth Fund
Summary of Expenses
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 fees2 0.81%
12b-1 fees3 0.97%
Other expenses 0.58%
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses 2.36%
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 $ 54
3 years $ 84
5 years $126
10 years $270
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 $ 24
3 years $ 74
5 years $126
10 years $270
1 The 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.
2 The management fee for Growth Fund is higher than that of most funds.
3 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."
4 Use 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.
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>
Limited Term-Bond Fund
Summary of Expenses
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 0.56%
12b-1 fees2 0.97%
Other expenses 0.62%
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses 2.15%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 52
3 years $ 77
5 years $115
10 years $248
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return3 and (2) no redemption at the end of each time period:
1 year $ 22
3 years $ 67
5 years $115
10 years $248
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
1 The 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.
2 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."
3 Use 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>
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>
Municipal Bond Fund
Summary of Expenses
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 0.56%
12b-1 fees2 0.97%
Other expenses 0.46%
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses 1.99%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 50
3 years $ 72
5 years $107
10 years $232
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return3 and (2) no redemption at the end of each time period:
1 year $ 20
3 years $ 62
5 years $107
10 years $232
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
1 The 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.
2 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."
3 Use 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>
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>
International Growth Fund1
Summary of Expenses
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
charge2 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 fees3 0.81%
12b-1 fees4 0.88%
Other expenses 0.71%
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses3 2.40%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return5 and (2) redemption at the end of each time period:
1 year $ 54
3 years $ 85
5 years $128
10 years $274
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return5 and (2) no redemption at the end of each time period:
1 International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
2 The 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.
3 Expense information has been restated to reflect the current management fees
which became effective April 20, 1995.
4 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."
5 Use 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 $ 24
3 years $ 75
5 years $128
10 years $274
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
Summary of Expenses
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 fees2 0.81%
12b-1 fees3 1.00%
Other expenses4 %
(includes, among other expenses, transfer agency, accounting, custodian, audit
and legal fees)
Total Fund
operating expenses %
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return5 and (2) redemption at the end of each time period:
1 year $
3 years $
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return5 and (2) no redemption at the end of each time period:
1 year $
3 years $
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
1 The 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.
2 The management fee for Asset Strategy Fund is higher than that of most funds.
3 Expense 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."
4 Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
5 Use 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>
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>
Financial Highlights of Waddell & Reed Funds, Inc.
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 Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 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 .. .13 .93 1.07
------ ------ ------
Total from investment
operations ....... .13 .92 1.09
------ ------ ------
Less dividends from net
investment income (0.00) (0.00) (0.02)
------ ------ ------
Net asset value,
end of period .... $12.12 $11.99 $11.07
====== ====== ======
Total return ....... 1.08% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $87,987 $61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.10%** 2.16% 2.21%**
Ratio of net investment
income to average
net assets ....... -0.07%** -0.12% 0.32%**
Portfolio turnover
rate ............. 20.83%** 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.
**Annualized.
<PAGE>
Financial Highlights of Waddell & Reed Funds, Inc.
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 Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 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 .. .89 2.75 1.79
------ ------ ------
Total from investment
operations ....... .89 2.71 1.77
------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.00) (0.31) (0.08)
------ ------ ------
Total distributions (0.00) (0.31) (0.09)
------ ------ ------
Net asset value,
end of period .... $14.97 $14.08 $11.68
====== ====== ======
Total return ....... 6.32% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $65,760 $43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.33%** 2.34% 2.50%**
Ratio of net investment
income to average
net assets ....... -0.41%** -0.97% -0.68%**
Portfolio turnover
rate ............. 81.18%** 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.
**Annualized.
<PAGE>
Financial Highlights of Waddell & Reed Funds, Inc.
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 Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $9.84 $10.06 $10.00
----- ------ ------
Income from investment
operations:
Net investment
income .......... .18 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.23) (0.20) .06
----- ------ ------
Total from investment
operations ....... (0.05) .15 .24
----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.18) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.02) (0.00)
----- ------ ------
Total distributions (0.18) (0.37) (0.18)
----- ------ ------
Net asset value,
end of period .... $9.61 $ 9.84 $10.06
===== ====== ======
Total return ....... -0.45% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $11,753 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.20%** 2.14% 2.15%**
Ratio of net investment
income to average
net assets ....... 3.79%** 3.41% 3.48%**
Portfolio turnover
rate ............. 19.48%** 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.
**Annualized.
<PAGE>
Financial Highlights of Waddell & Reed Funds, Inc.
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 Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $10.12 $10.53 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... .21 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) (0.28) .53
------ ------ ------
Total from investment
operations ....... .08 .11 .74
------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.21) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.13) (0.00)
------ ------ ------
Total distributions (0.21) (0.52) (0.21)
------ ------ ------
Net asset value,
end of period .... $ 9.99 $10.12 $10.53
====== ====== ======
Total return ....... 0.82% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $25,753 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.95%** 1.98% 1.94%**
Ratio of net investment
income to average
net assets ....... 4.15%** 3.62% 3.99%**
Portfolio turnover
rate ............. 78.23%** 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.
**Annualized.
<PAGE>
Financial Highlights of Waddell & Reed Funds, Inc.
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 Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $9.37 $9.68 $10.00
----- ----- ------
Income from investment
operations:
Net investment
income .......... .18 .34 .20
Net realized and
unrealized loss
on investments .. (0.04) (0.31) (0.32)
----- ----- ------
Total from investment
operations ....... .14 .03 (0.12)
----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.18) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.08) (0.00)
----- ----- ------
Total distributions. (0.18) (0.34) (0.20)
----- ----- ------
Net asset value,
end of period .... $9.33 $9.37 $ 9.68
===== ===== ======
Total return ....... 1.53% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $10,863 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.25%** 2.24% 2.06%**
Ratio of net investment
income to average
net assets ....... 3.84%** 3.56% 3.88%**
Portfolio turnover
rate ............. 17.85%** 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.
**Annualized.
Asset Strategy Fund began operations in April 1995.
Information regarding the performance of a Fund is contained in the Fund's
annual report to shareholders which may be obtained without charge by request to
the Fund at the address or phone number shown on the cover of this Prospectus.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds may
also advertise their performance by showing yield and performance rankings.
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.
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.
About the Investment Principles of the Funds
Investment Goals and Principles
The goal of each Fund is a matter of fundamental policy and may not be changed
without the approval of the shareholders of that Fund. There is no assurance
that a Fund will achieve its goals; some market risks are inherent in all
securities to varying degrees.
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 which 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 or short-term securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities); or (iii) invest in convertible
preferred stock. A defensive posture may create a reduction in the Fund's
yield.
Growth Fund.
The goal of Growth Fund is capital appreciation. The Fund attempts 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 which 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 securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities); or (iii) invest in convertible preferred
stock. A defensive posture may create a reduction in the Fund's yield.
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 debt
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities ("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"), 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
which 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 which 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 create a reduction in the Fund's yield.
Municipal Bond Fund.
The goal of Municipal Bond Fund is to provide income which is not subject to
Federal income taxation. The Fund attempts 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 which Municipal Bond Fund may purchase are (i) U.S.
Government Securities; (ii) bank obligations of domestic banks or savings and
loan associations which 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 which 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 create a
reduction in the Fund's yield.
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 tries 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 which WRIMCO believes have
the potential for long-term growth.
There are three main kinds of securities that the Fund will own: common stocks,
preferred stocks and debt securities. The securities that the Fund purchases
because they may increase in value over the long term will usually be common
stocks or securities which 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 which 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
short-term U.S. Government Securities) or preferred stocks or both; or (ii)
invest completely or substantially in U.S. securities.
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. When you sell your shares, they may be
worth more or less than what you paid for them.
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 aggressively 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. Asset Strategy
Fund may also make other investments that do not fall within these classes if
WRIMCO believes that doing so will help the Fund achieve its goal.
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 both the risk and return 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 seeks to maximize total return within each class. WRIMCO seeks to
maximize total return within the stock 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. 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. WRIMCO seeks to maximize total return within
the short-term asset class by taking advantage of yield differentials between
different instruments, issuers, and currencies. WRIMCO intends 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.
WRIMCO normally invests the Fund's assets according to its investment strategy;
however, as a temporary defensive measure at times when WRIMCO believes that
stocks, bonds and certain short-term instruments do 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 Group ("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.
Securities and Investment Practices and Associated Risks
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 by a Fund's investment policies and restrictions
unless it believes that doing so will help a Fund achieve its goal. As a
shareholder, you will receive annual and semiannual reports detailing each
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 shareholders. Unless otherwise
indicated, the types of securities 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 Statement of Additional Information ("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 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 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. Longer-term bonds are generally more sensitive
to interest rate changes than shorter-term bonds. Debt securities rated AAA,
AA, A and BBB by S&P or Aaa, Aa, A and Baa by MIS, or unrated securities judged
by WRIMCO to be of equivalent quality to rated securities in these categories,
are considered to be of investment grade quality. Debt securities rated in the
lowest investment grade category (BBB by S&P or Baa by MIS), or comparable
unrated securities, may have speculative characteristics. Debt securities rated
in the lower rating categories of the established rating services (BB or lower
by S&P or Ba or lower by MIS), or comparable unrated securities, (commonly
called "junk bonds") have predominantly speculative characteristics with respect
to capacity to pay interest and repay principal in accordance with the terms of
the obligation. 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.
Subject to its investment restrictions, a Fund may invest in debt securities
rated in any rating category of the established rating services, as described in
Appendix A to the SAI, and unrated securities judged by WRIMCO to be of
equivalent quality.
Credit ratings for individual securities may change from time to time, and a
Fund may retain a portfolio security whose rating has been changed.
Lower-quality debt securities 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. In fact, from 1989 to 1991, the percentage of lower-rated debt
securities that defaulted rose significantly above prior levels, although the
default rate decreased in 1992. 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.
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.
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 Baa by MIS or BBB by S&P and unrated
securities judged by WRIMCO to be of equivalent quality). However, the 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.
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. Factors which 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.
Money Market Instruments are high-quality instruments that present minimal
credit risk. They may include U.S. government obligations, 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:
It is anticipated that 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 (i) are 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)
are 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 market; or (iii) are issued or guaranteed by
any foreign government or any subdivision, agency or instrumentality thereof.
Under normal conditions, Asset Strategy Fund intends to limit its investments in
foreign securities to no more than 50% of 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 options, 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, 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. However, Asset Strategy Fund does
not intend to invest more than 50% of its total assets in a combination of
forward currency contracts, swap agreements, mortgage-backed securities, asset-
backed securities, stripped securities, zero-coupon securities and when-issued
and delayed-delivery transactions.
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 strategies and risk considerations
relating thereto.
Options. The Funds 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. Option transactions may increase a Fund's portfolio turnover rate
creating greater commission expenses, transaction costs and tax consequences.
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 stock 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 write and purchase over-the-counter ("OTC") options
on Domestic Debt Securities.
Municipal Bond Fund may write and purchase listed options on indices on
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).
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.
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. See the SAI for the limitations on Asset Strategy Fund's use of
these instruments.
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 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.
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.
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 investment goal and 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. These Funds expect 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 or floor it may
enter into as long as WRIMCO determines it is consistent with the Fund's
investment goal and 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 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.
Risks of Derivatives Techniques. The use of options, futures contracts, options
on futures contracts, forward contracts, swaps, caps, floors and indexed
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 each of the instruments described above for hedging purposes to
adjust the risk characteristics of a Fund's portfolio of investments and may use
some of these instruments for speculation to adjust the return characteristics
of a Fund's portfolio of investments. 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, foreign
currency 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 transactions costs
and may result in certain tax consequences. See the SAI for further information
regarding these and other risks.
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.
Mortgage-Backed and Asset-Backed Securities may include pools of consumer loans
or mortgages, such as collateralized mortgage obligations 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 and asset-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 and
asset-backed securities and that principal may be prepaid at any time because
the underlying mortgage loans or other assets 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 (i.e., liquidity) of these securities could be adversely affected
by actions of the U.S. government to tighten the availability of its credit.
Policies and Restrictions:
Limited-Term Bond Fund intends to invest a significant percentage of its net
assets in collateralized mortgage obligations.
Asset Strategy Fund does not currently intend to invest in any non-mortgage
asset-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.
Direct Debt. Loans and other direct debt instruments are interests in amounts
owed to another party by a company, government, or other borrower. They have
additional risks beyond conventional debt securities.
Investments in direct debt instruments may entail less legal protection for a
Fund. Certain types of direct indebtedness purchased by a Fund, such as letters
of credit, revolving credit facilities, or other standby financing commitments,
obligate 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. 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, a Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
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. Because a Fund is not required to pay for securities until the
delivery date, these risks are in addition to the risks associated with a Fund's
other investments. If a Fund remains substantially fully invested at a time
when delayed-delivery purchases are outstanding, the delayed-delivery purchases
may result in a form of leverage. When delayed-delivery purchases are
outstanding, a Fund will set aside appropriate liquid assets in a segregated
custodial account to cover its purchase obligations. 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. A Fund may
renegotiate delayed-delivery transactions after they are entered into, and may
sell underlying securities before they are delivered, which may result in
capital gains or losses.
Policies and Restrictions:
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.
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:
Each Fund, except Municipal Bond Fund, 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 assets consist of such
securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and
International Growth Fund may not invest more than 10% of its net assets in
illiquid investments.
Asset Strategy Fund may invest in restricted securities.
Asset Strategy Fund may not purchase a security if, as a result, more than 15%
of its assets would be invested in illiquid investments.
Other Instruments may include convertible securities, depositary receipts,
preferred stocks, rights, securities of closed-end investment companies, and
warrants.
Policies and Restrictions:
Growth Fund and 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
assets consist of warrants, rights or a combination thereof.
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.
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, subject to certain conditions explained in the SAI.
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:
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Under normal market conditions, International Growth Fund will have at least 65%
of its assets invested in at least three different countries outside the U.S.
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.
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.
Asset Strategy Fund currently intends to limit its investments in obligations of
any single foreign government to less than 25% of its total assets.
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 temporary or
emergency 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:
As a fundamental policy, no more than 10% of the respective assets of Total
Return Fund, Growth Fund, International Growth Fund or Asset Strategy Fund, or
30% of the assets of Limited-Term Bond Fund, may be loaned at any one time.
Municipal Bond Fund may not lend its securities.
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
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Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts can have two or
more owners (tenants).
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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/
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.
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Gifts or transfers to a Minor (UGMA, UTMA)
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.
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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 NAV is the value of a single share of that Fund. A Fund's NAV is
computed by adding up the value of that Fund's investments, cash, and other
assets, subtracting its liabilities, and then dividing the result by the number
of 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 or at the direction of the Board of
Directors.
The Funds are open for business each day the New York Stock Exchange (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.
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 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 $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
indicating which Fund's 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 shares at their NAV next calculated after your
written request for redemption is received and accepted, 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
Joint Tenant must be signed by all
persons required to sign
for transactions, exactly
as their names appear on
the account.
Sole
Proprietorship The written instructions
must be signed by the
individual owner of the
UGMA, UTMA business.
The custodian must sign
the written instructions
Retirement indicating capacity as
account custodian.
The written instructions
must be signed by a
Trust properly authorized
person.
The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
Business or registration, provide a
Organization currently certified copy
of the trust document.
At least one person
Conservator, authorized by corporate
Guardian or resolution to act on the
Other Fiduciary account must sign the
written instructions.
The written instructions
must be signed by the
person properly authorized
by court order to act in
the particular fiduciary
capacity.
Note the following:
Written requests for redemption must be in good order, which requires that 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 shares. 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 a shareholder's account resulting from
capital appreciation above the amount paid for 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 shares purchased
during the deferred sales charge period representing capital appreciation, next
of shares purchased during the deferred sales charge period representing payment
of dividends and distributions and then to 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 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 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 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 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 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 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 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 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 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 most 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 shares of any of the Funds and buy shares of another Fund
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 shares of United Cash Management, Inc., a fund in
the United Group of Mutual Funds, 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
Dividends and 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 dividends and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in additional
shares of the distributing Fund.
Taxes
Each Fund intends to qualify, in the case of Asset Strategy Fund, or to continue
to qualify for treatment as a regulated investment company under the Internal
Revenue Code of 1986 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 Internal Revenue 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 shares of a Fund within thirty days
before or after redeeming other 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.
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 ("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 Fund only has one class of shares. Each share of a Fund has the same
rights to dividends and to vote as other shares of the Fund. Shares are fully
paid and nonassessable when bought.
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 ____________.
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 the Fund's inception. 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 other 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 the Fund's inception. 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. Seferovich has served as the portfolio
manager of other 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. He previously served
as a portfolio manager for a brokerage firm.
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 the Fund's inception. 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 the Fund's inception. 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 of 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 other investment companies managed by Waddell & Reed, Inc. or 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 the inception of the Fund. 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 other 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 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 at the right.
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.
For the fiscal year ended March 31, 1994, management fees for each Fund then in
existence as a percentage of each such Fund's net assets were as shown above.
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%.
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. Each Fund pays the Shareholder
Servicing Agent a monthly fee for each 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, 1994, 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 2.16%; Growth Fund 2.34%; Limited-Term Bond Fund
2.14%; Municipal Bond Fund 1.98%; and International Growth Fund 2.24%. 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, 1994.
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 Investment Company Act of 1940
(the "1940 Act") and as authorized under a Distribution and Service Plan (the
"Plan"), may finance the distribution of the shares of the Funds.
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 daily net assets. 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 shares, and up to 0.25% may be paid to
reimburse the Distributor for continuing payments made to the Distributor's
sales representatives and managers, its administrative costs in overseeing these
payments, and the expenses of Waddell & Reed Services Company, a subsidiary of
the Distributor, in providing certain personal services to shareholders.
The service fee of 0.25% annually of each Fund's daily net asset value is paid
to the Distributor for providing personal services to shareholders through the
Distributor's sales representatives and sales managers and to maintain
shareholder accounts. Up to 0.05% of the 0.25% service fee may be paid by the
Distributor to Waddell & Reed Services Company to cover its costs in providing
the services to shareholders in order to maintain shareholder accounts. These
ongoing payments will be made only in amounts sufficient to constitute
reimbursement for expenses actually incurred and will cease if the Plan and
Underwriting Agreement with the Distributor terminate.
In addition to these fees, the Distributor may be compensated for distribution
of the Fund shares 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 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. ("NASD") for asset based sales charges and front end
sales charges, respectively, were the Corporation's 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. During any one period of time, the amount paid by the Distributor in
commissions to its sales force and attendant promotional and overhead costs may
exceed the amount it receives from the distribution fees and deferred sales
charges. Although such fees and charges are paid to reimburse the Distributor
for such expenses, the expenses are not a liability of the Corporation, and the
Corporation at any time may on written notice terminate the Plan and the
Underwriting Agreement with the Distributor without penalty and without further
payment of the distribution fee. In such event the deferred sales charge may
remain in effect as to investments made prior to termination.
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 66201-9217
1800 M Street, N. W. (913) 236-2000
Washington, D. C.
Shareholder Servicing
Independent Accountants Agent
Price Waterhouse LLP Waddell & Reed
Kansas City, Missouri Services Company
6300 Lamar Avenue
Investment Manager P. O. Box 29217
Waddell & Reed Investment Shawnee Mission, Kansas
Management Company 66201-9217
6300 Lamar Avenue (913) 236-2000
Shawnee Mission, Kansas
66201-9217 Accounting Services
(913) 236-2000 Agent
Waddell & Reed
Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
<PAGE>
Waddell & Reed Funds, Inc.
PROSPECTUS
April 20, 1995
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
WRP3000(4-95)
printed on recycled paper
<PAGE>
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
April 20, 1995
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with the prospectus
(the "Prospectus") of Waddell & Reed Funds, Inc. (the "Corporation") dated April
20, 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
Investment Goals and Policies .................... 5
Investment Management and Other Services ......... 44
Purchase, Redemption and Pricing of Shares ....... 50
Directors and Officers ........................... 58
Payments to Shareholders ......................... 64
Taxes ............................................ 65
Portfolio Transactions and Brokerage ............. 70
Other Information ................................ 73
Appendix A ....................................... 75
Appendix B ....................................... 77
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's principal underwriter and
distributor ("Distributor"), or the Corporation may from time to time publish
for one or more of the six Funds (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. 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 reflect the imposition of the maximum
applicable deferred sales charge. All dividends and distributions are assumed
to be reinvested at net asset value as of the day the dividend or distribution
is paid. No sales load is charged on reinvested dividends or distributions.
The formula used to calculate the average annual total return 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 9/30/94, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
One Year Period Period from
From 10-1-93 9-21-92* to
to 9-30-94 9-30-94
--------------- -----------
Total Return Fund 1.75% 9.17%
Growth Fund 5.01% 23.03%
Limited-Term Bond Fund -5.20% 0.72%
Municipal Bond Fund -7.81% 3.43%
International Growth Fund -2.29% -0.65%
*Date of initial public offering
The average annual total return quotations without the maximum deferred
sales charge deducted as of 9-30-94, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
One Year Period Period from
From 4/1/93 9/21/92* to
to 9/30/94 9/30, 1994
--------------- --------------
Total Return Fund 4.75% 10.06%
Growth Fund 8.01% 23.82%
Limited-Term Bond Fund -2.38% 1.65%
Municipal Bond Fund -5.10% 4.38%
International Growth Fund 0.62% 0.28%
*Date of initial public offering
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 September 30, 1994, 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 ____%
Municipal Bond Fund ____%
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 September 30, 1994, the date of the most recent balance
sheet included in this SAI, is ____%, ____%, ____%, ____% and ____% 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. 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 which 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.
INVESTMENT GOALS AND POLICIES
The investment goals and policies of the Funds are described in the
Prospectus, which refers to the Funds' investment methods and practices.
Additional information regarding certain methods and practices are included
below.
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.
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. 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. The 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 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). 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.
In making asset allocation decisions, Waddell & Reed Investment Management
Company, investment manager to the Funds, ("WRIMCO") typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Securities - General
Certain of the Funds may invest in securities including 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.
Certain of the Funds 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.
Certain of the Funds 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.
Certain Types of Securities
U.S. Government Securities. 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, Land 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. The Funds will invest in securities of agencies
and instrumentalities only if WRIMCO is satisfied that the credit risk involved
is acceptable.
The various types of U.S. Government Securities 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 the collateralized mortgage obligation. 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.
Limited-Term Bond Fund and Municipal Bond Fund may also invest in deposits
in banks (represented by certificates of deposit or other evidence of deposit
issued by such banks of varying maturities) to the extent that the principal of
such deposits is insured by the Federal Deposit Insurance Corporation; such
deposits are referred to as "Insured Deposits." Such insurance (and
accordingly, the Funds' aggregated investments) is currently limited to $100,000
per bank; any interest above that amount is not insured. Insured Deposits are
not marketable, and a Fund may invest in them only within the 10% limit
mentioned below under "Illiquid Investments" unless such obligations are payable
at principal amount plus accrued interest on demand or within seven days after
demand.
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.
The 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 industrial development
bonds the interest on which is free from Federal income taxation (though it may
be an item of tax preferences for purposes of the alternative minimum tax) are
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 which 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 holds that an
obligation held by a Fund is not a municipal bond (i.e., that the interest
thereon is taxable), the 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 the Appendix to this SAI),
now or in the future, Standard and Poor's Corporation ("S&P") or Moody's
Investors Services ("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 investment policies and goal, municipal bonds purchased by a
Fund will comply with the percentage limits discussed 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
collateralized mortgage obligations ("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.
Asset Strategy 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 Asset Strategy Fund may invest in them if WRIMCO
determines they are consistent with its investment objective and policies.
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.
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.
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.
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.
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.
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.
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, 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
International Growth Fund and Asset Strategy Fund may invest in foreign
securities, 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 (including foreign currency exchange contracts) are foreign securities
and only if those foreign securities (i) are, or are represented by Depositary
Receipts which 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 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 ("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 which 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.
Asset Strategy Fund may hold foreign currency deposits from time to
time, and may convert dollars and foreign currencies in the foreign exchange
markets. Currencies may be exchanged on a spot (i.e., cash) basis, or by
entering into forward contracts to purchase or sell foreign currencies at a
future date, at a price set when the contract is entered into. See "Options,
Futures and Other Strategies."
Restricted Securities
Asset Strategy Fund may invest in restricted securities subject to its
limitation on investment in 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.
Restricted securities which are traded in foreign markets are often subject
to restrictions which prohibit resale to United States persons or entities or
permit sales only to foreign broker-dealers who agree to limit their resale to
such persons or entities. The buyer of such securities must enter into an
agreement that, usually for a limited period of time, it will resell such
securities subject to such restrictions.
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.
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 which 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.
Under the Funds' current securities lending procedures, the Funds may lend
securities only to creditworthy broker-dealers and financial institutions. 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, International Growth Fund or Asset Strategy Fund, or 30% of the assets of
Limited-Term Bond Fund, may be loaned at any one time. There may be risks of
delay in receiving additional collateral from the borrower if the market value
of the securities loaned goes up, 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. A repurchase transaction occurs when, at the time a Fund
purchases securities, it also agrees to resell them to the vendor (normally a
commercial bank or broker-dealer), and must deliver those securities (and/or
securities substituted for them under the repurchase agreement) to the vendor on
an agreed-upon date in the future. In this section, such securities (including
any securities so substituted) are referred to as the "Resold Securities." The
resale price is in excess of the purchase price in that it reflects an agreed-
upon market interest rate effective for the period of time during which the
Fund's money is invested in the Resold Securities. The majority of the
repurchase transactions in which a Fund would engage run from day to day, and
the delivery pursuant to the resale typically will occur within one to five days
of the purchase. A Fund's risk is limited to the ability of the vendor to pay
the agreed-upon sum on the delivery date. In the event of bankruptcy or other
default by the vendor, there may be possible delays and expenses in liquidating
the Resold Securities, decline in their value and loss of interest. Upon
default, the Resold Securities constitute collateral security for the repurchase
obligation. 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 Resold
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, is and, during the entire term of the agreement, remains 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 and Asset Strategy Fund may not invest more than 5% of their
respective 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 their respective assets (at the time of investment) may be
invested in warrants that are not listed on the NYSE or the American Stock
Exchange. 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
Municipal Bond Fund, Limited-Term Bond Fund and Asset Strategy Fund may
each purchase any securities in which it may invest on a when-issued or delayed
delivery basis or sell them on a delayed delivery basis. Municipal Bond Fund
and Limited-Term Bond Fund do not intend to enter into such transactions in an
amount exceeding 5% of their respective total assets. The value may be less
when delivered than the purchase price paid. For example, delivery to the Fund
and payment by the Fund in the case of a purchase by it, or delivery by the Fund
and payment to it in the case of a sale by the Fund, may take place a month or
more after the date of the transaction. The purchase or sale price are 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. The securities so
purchased by a Fund are subject to market fluctuation; their value may be less
when delivered than the purchase price paid. 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 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 be sold at or before
the settlement date.
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 may not
invest more than 15% of its assets 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) unlisted 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 or under the
direction of the Board of Directors; (vi) securities involved in swap, cap and
floor transactions; and (vii) non-government stripped fixed-rate mortgage-backed
securities. 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 will 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
As discussed in the Prospectus, WRIMCO may use a variety of financial
instruments ("Financial Instruments"), including certain options, futures
contracts (sometimes referred to as "futures"), options on futures contracts and
forward currency contracts to attempt to enhance the Funds' income or yield or
to attempt to hedge the Funds' portfolios. Certain of these Financial
Instruments are described in Appendix A to this Statement of Additional
Information.
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 Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded, the Commodity Futures Trading Commission ("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 products, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, forward currency contracts 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, forward currency
contracts or other techniques are developed. WRIMCO may utilize these
opportunities to the extent that they are consistent with the Funds' investment
goals and permitted by the Funds' investment limitations and applicable
regulatory authorities. The Funds' Prospectus or Statement of Additional
Information 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 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 ("contra party") 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 similar 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 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 at less than its market value. If the call option is an OTC option,
the securities or other assets used as cover would be considered illiquid to the
extent described under "Illiquid Investments."
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.
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 option that it had written by purchasing an identical
call 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.
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 contra party (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus,
when a Fund purchases an OTC option, it relies on the contra party from whom it
purchased the option to make or take delivery of the underlying investment upon
exercise of the option. Failure by the contra party 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 contra party, or by a transaction in the secondary market if any such
market exists. Although a Fund will enter into OTC options only with contra
parties that are expected to be capable of entering into closing transactions
with the Fund, 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 contra party, 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.
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.
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 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; and
(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" below.
Futures. 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 covered 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 portfolio. If WRIMCO wishes to shorten the average duration of a Fund,
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, 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, U.S. Government Securities or other liquid, high-grade debt
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.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, "program trading" and other investment strategies might result in
temporary price distortions.
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 security, 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 its portfolio 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. 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 or International Growth 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. 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) Total Return Fund, Growth Fund, Limited-Term Bond Fund and Municipal
Bond Fund each may not purchase or sell futures contracts or related options if,
immediately thereafter, the sum of the initial margin deposits on the Fund's
existing futures contracts positions and initial margin and premiums paid for
related options would exceed 5% of the market value of the Fund's total assets.
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;
(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; and
(5) Futures contracts and related options may not be purchased by Total
Return Fund, Growth Fund, Limited-Term Bond Fund and Municipal Bond Fund if
immediately thereafter more than 30% of its total assets would be so invested.
In addition, each of Total Return Fund, Growth Fund, Limited-Term Bond Fund
and Municipal Bond Fund has represented to the CFTC that it will use futures
contracts, options thereon and foreign currency options traded on a commodities
exchange solely in bona fide hedging transactions or under other circumstances
permitted by the CFTC.
In addition, 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 the Funds' 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 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. 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 contra
party to make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party 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 contra party. 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 contra party, 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.
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 the 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.
Swap Agreements. 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 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 a custodian that satisfies the
requirements of the Investment Company Act of 1940, as amended ("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.
The Manager and the Funds believe that swaps, caps and floors do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to the Funds' borrowing restrictions.
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 the Manager determines that it is consistent
with the Fund's investment goal and 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. The Manager 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.
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 Investment Company Act of 1940, as amended
("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 which it otherwise may buy even though the
issuer invests in real estate or interests in real estate. Asset
Strategy Fund may not 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 which issues redeemable securities. Total Return
Fund, Growth Fund and International Growth Fund may buy shares of an
investment company which 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 which 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) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not 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 "Investments in Warrants."
(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
temporary or emergency 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 which
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.
(i) 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.
(ii) 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 assets.
(iii) 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.)
(iv) 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. As a shareholder in an investment
company, the 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.
(v) 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.
(vi) 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.
(vii) Asset Strategy Fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
For the Funds' limitations on futures and options transactions, see the
section entitled "Limitations on Futures and Options Transactions."
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, 1994
and 1993 for each of the Funds then in existence were as follows:
1994 1993*
---- -----
Total Return Fund 17.31% 23.97%
Growth Fund 69.12% 124.44%
Limited-Term Bond Fund 25.90% 39.64%
Municipal Bond Fund 18.93% 140.02%
International Growth Fund** 34.90% 8.35%
*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.
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 ("Shareholder Servicing
Agreement") and a separate agreement for accounting services ("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 __________. Waddell & Reed, Inc. serves as principal
underwriter for the Funds, the investment companies in the United Group of
Mutual Funds and 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 Fund 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, 1994 and 1993 for
each of the Funds then in existence were as follows:
1994 1993*
---- -----
Total Return Fund $255,556 $21,358
Growth Fund 185,715 17,277
Limited-Term Bond Fund 52,456 10,247
Municipal Bond Fund 95,328 12,598
International Growth Fund** 62,024 19,695
*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,
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, 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. It 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, 1994 and
1993 for each of the Funds then in existence were as follows:
1994 1993*
---- -----
Total Return Fund $20,000 $833
Growth Fund 13,333 ---
Limited-Term Bond Fund 4,167 ---
Municipal Bond Fund 10,833 ---
International Growth Fund**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 ("Agreement"). The
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 (the "Plan") adopted by the
Corporation pursuant to Rule 12b-1 under the Investment Company Act of 1940, the
Corporation, with respect to each Fund, pays the Distributor daily a
distribution fee at the annual rate of up to 0.75% of the particular Fund's net
asset value and a service fee of up to 0.25% of the particular Fund's 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 Plan and the 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. The amounts actually paid by the Distributor
in providing these services to shareholders are reimbursed by the service fee,
subject to the limitations set forth in the Plan. A service fee is not payable,
however, unless the amounts have actually been expended by the Distributor in
providing these continuing services. For the fiscal year ended March 31, 1994,
the Corporation paid (or accrued) the following amounts to the Distributor as
distribution fees and service fees for each of the Funds then in existence,
respectively, under the Plan: Total Return Fund - $274,052 and $85,722; Growth
Fund - $174,653 and $51,486; Limited-Term Bond Fund - $70,849 and $20,588;
Municipal Bond Fund - $129,488 and $38,870; and International Growth Fund
(formerly Global Income Fund) - $70,692 and $11,997. 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 Fund shares. The
service fees were paid to reimburse the Distributor for its expense of
compensating its sales personnel for personal services to the particular Fund's
shareholders.
The Plan and 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"). The Plan was also approved as to each Fund by
the Distributor as the sole shareholder of the shares of each of the Funds at
the time. The Plan will be submitted for approval by shareholders of each Fund
at the first meeting of shareholders following the commencement of the public
distribution of the Corporation's shares.
Among other things, the Plan 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 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.
In approving the Plan and the Agreement, the Directors, including the Plan
Directors, considered that investors will be offered an alternative to
purchasing shares of a mutual fund with a front end sales charge and considered
the incentive provided by the service fee to the Distributor, and particularly
to its sales force, to provide continuing service to shareholders in maintaining
their investments in the Corporation's shares. In addition, these Directors
considered the features of the distribution system including (i) the conditions
under which the deferred sales charge would be imposed and the amount thereof,
(ii) the advantage to investors of having the entire amount of their purchase
payment immediately invested in the Corporation's shares, (iii) the
Distributor's belief that the ability of the sales force to receive sales
commissions when the shares are sold and continuing service fees thereafter will
prove attractive to the sales force, resulting in the greater growth of each of
the Funds than might otherwise be the case, (iv) the advantages to shareholders
of a Fund of the economies of scale resulting from growth of the Fund's assets
and the ability to achieve greater diversification of Fund investments than if
the Fund's assets were limited, (v) the services provided to the Corporation and
its shareholders by the Distributor and its affiliates, (vi) the Distributor's
expenses and costs in promoting the sale of Corporation shares and particularly
the payments of commissions and incentives to its sale force and (vii) the
indirect costs to shareholders of the distribution and service fees. The
Directors also recognized the Distributor's willingness to undertake the
distribution expenses without the concomitant receipt of an initial front end
sales charge and without any guarantee that the compensation under the Plan will
not unilaterally be terminated by the Corporation before the Distributor can
recover its expenses. The Directors also considered all the fees that would be
payable to the Distributor and its affiliates for the various services provided
to the Corporation and its shareholders, which fees would increase if the Plan
is successful and the Funds attained and maintained significant asset levels.
For the Corporation's fiscal year ended March 31, 1994, the Distributor
earned deferred sales charges from each of the Funds then in existence,
respectively as follows: Total Return Fund - $31,390; Growth Fund - $19,373;
Limited-Term Bond Fund - $13,456; Municipal Bond Fund - $36,544; and
International Growth Fund (formerly Global Income Fund) - $5,470.
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 Investment Company Act of
1940. 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 of the shares of a Fund is the value of the
Fund's assets, less its liabilities, divided by the total number of shares
outstanding. For example, if on a particular day a Fund owned securities worth
$100 and had cash of $15, the total value of the assets would be $115. If it
owed $5, the net asset value would be $110 ($115 minus $5). If it had 11 shares
outstanding, the net asset value of one share would be $10 ($110 divided by
11).
The offering price of a 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 daily 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 it 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 portfolio securities of each Fund, except as otherwise noted, 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 which is the mean between the closing bid and
asked prices. Other securities which 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 (that is, 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.
Minimum Initial and Subsequent Investments
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.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming 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 shares which you still own of any of the
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 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 shares you own will decrease. When all of the
shares in your account are redeemed, you will not receive any 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
You may exchange shares of one Fund of the Corporation for shares of
another Fund of the Corporation without charge. The exchange will be made at
the net asset values next determined after receipt and acceptance of your
written request 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.
The redemption of a Fund's 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 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.
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 $22,500.
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 discusses the reinvestment privilege under which you may
reinvest in any one or more of the Funds all or part of any amount 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 shares of a Fund are then being offered, you can
put all or part of your redemption payment back into that Fund's shares 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 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 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,
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.
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
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
University of Colorado
Campus Box 419
Boulder, Colorado 80309
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.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and related subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund (Mr. Morgan retired as Chairman of the Board of Directors and President
of these Funds 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.
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
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
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.; formerly a fund manager with Security Management Company, a brokerage
firm.
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 Fund 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 Fund and two other funds in the Fund Complex; Vice
President of WRIMCO.
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, four of the Corporation's Directors may be
deemed to be "interested persons" as defined in the 1940 Act of the Distributor
or 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 and TMK/United Funds, Inc.
pay to each Director a total of $40,000 per year, plus $500 for each meeting of
the Board of Directors attended and $1,000 for each committee meeting attended
(prior to January 1, 1995, the fee was $500 for each meeting of the Board of
Directors 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 and TMK/United Funds, Inc. based on their relative
size. During the Corporation's fiscal year ended March 31, 1994, its share was
$1,803. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of January 31, 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, United Investors Life Insurance Company, an affiliate of the
Distributor, owned of record and beneficially ____% of the Corporation's
outstanding shares. United Investors Life Insurance Company is a Missouri
corporation whose address is 2001 Third Avenue South, Birmingham, Alabama
32533. The address of the Distributor is stated on the front cover of this
SAI.
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, 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 its expenses. 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 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 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
In your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions reinvested in Fund shares, or (iii) you want cash for your
dividends and want your distributions reinvested in shares of the distributing
Fund. You can change your instructions at any time. If you give no
instructions, your dividends and distributions will be reinvested in Fund
shares. 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
Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in Fund shares 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 qualify, in the case of Asset Strategy Fund, or 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 the 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.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the 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 the
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 the 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 the 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 described above 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, 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.
1994 1993*
---- -----
Total Return Fund $70,780 $16,390
Growth Fund 26,876 1,525
Limited-Term Bond Fund --- ---
Municipal Bond Fund --- ---
International Growth Fund** --- ---
------- -------
Total $97,656 $17,915
======= =======
*For the period 9/21/92, the date of initial public offering, to 3/31/93.
**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, 1994 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 ................. $42,003,630 $59,153
Growth Fund ....................... 5,454,781 14,058
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
International Growth Fund** .... --- ---
---------- -------
Total .......................... $47,458,411 $73,211
========== =======
**Formerly Global Income Fund
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 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 Fund represent an interest in that Fund's securities and
other assets and in its profits or losses. Each share of each Fund has the same
rights to dividends and to receive assets if the Corporation liquidates (winds-
up) as every other share of that Fund. Each fractional share has the same
rights, in proportion, as a full share. All shares of each Fund are fully paid
and nonassessable when you buy them.
Each share of each Fund is entitled to one vote. On certain matters such
as the election of Directors, all shares of all of the Funds vote together as a
single class. On other matters affecting a particular Fund, the shares of that
Fund vote as a separate class; an example would be a change in an investment
restriction of a particular Fund. In voting on the Management Agreement or the
Plan, approval by the shareholders of a Fund is effective as to that Fund
whether or not enough votes are received from the shareholders of any of the
other Funds to approve the Management Agreement or the Plan for the other
Funds.
Those shares held by the Distributor or its corporate affiliates (as
described below) will be voted in proportion to the voting instructions which
are received on any matter. Voting instructions to abstain on any item to be
voted upon will be applied to reduce the votes eligible to be cast by the
Distributor and its corporate affiliates.
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 have
been 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 Funds may use some or all of the following instruments as discussed in
the Prospectus and this SAI:
Options on Equity and Debt Securities and Foreign Currencies--A call option
is a short-term contract pursuant to which the purchaser of the option, in
return for a premium, has the right to buy the security or currency underlying
the option at a specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying
security or currency against payment of the exercise price. A put option is a
similar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security or currency at a specified price during the option
term. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option term, to buy the
underlying security or currency at the exercise price.
Options on Stock Indices--A stock index assigns relative values to the
stocks included in the index and fluctuates with changes in the market values of
those stocks. A stock index option operates in the same way as a more
traditional stock option, except that exercise of a stock index option is
effected with a cash payment and does not involve delivery of securities. Thus,
upon exercise of a stock index option, the purchaser will realize, and the
writer will pay, an amount based on the difference between the exercise price
and the closing price of the stock index.
Options on Bond Indices--A bond index assigns relative values to the
debt securities included in the index and fluctuates with changes in such
values. Settlement of bond index options is effected with a cash payment and
does not involve delivery of securities. Thus, upon settlement of a bond index
option, the purchaser will realize, and the writer will pay, an amount based on
the difference between the exercise price and the closing price of the bond
index.
Stock Index and Bond Index Futures Contracts--An index futures contract is
a bilateral agreement pursuant to which one party agrees to accept, and the
other party agrees to make, delivery of an amount of cash equal to a specified
dollar amount times the difference between the value of the stock or bond index,
as the case may be, at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
securities comprising the index is made. Generally, contracts are closed out
prior to the expiration date of the contract.
Interest Rate and Foreign Currency Futures Contracts--Interest rate and
foreign currency futures contracts are bilateral agreements pursuant to which
one party agrees to make, and the other party agrees to accept, delivery of a
specified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the
contracts are closed out before the settlement date without the making or taking
of delivery.
Options on Futures Contracts--Options on futures contracts are similar to
options on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, 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), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon
exercise of the option, the delivery of the futures position to the holder of
the option will be accompanied by delivery of the accumulated balance that
represents the amount by which the market price of the futures contract exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the future. The writer of an option, upon exercise, will
assume a short position in the case of a call and a long position in the case of
a put.
Forward Currency Contracts--A forward currency contract involves an
obligation to purchase or sell a specific currency at a specified future date,
which may be any fixed number of days from the contract date agreed upon by the
parties, at a price set at the time the contract is entered into.
<PAGE>
APPENDIX B
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.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's ("S&P") corporate
or municipal 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. Standard & Poor's
does not perform any audit in connection with any ratings 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.
A brief description of the applicable Standard & Poor's rating symbols and
their meanings follow:
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
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 Standard & Poor's
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 Legal
Investment 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. 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 COMMERCIAL PAPER RATINGS
Standard & Poor's Corporation commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into four categories,
ranging from A 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 either
overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted with a plus sign designation. An A-2 rating
indicates that capacity for timely payment is strong; however, the relative
degree of safety is not as high as for issues designated A-1. Issues rated A-3
have a satisfactory capacity for timely payment; however, they are somewhat more
vulnerable to the adverse effects of changes in circumstances than obligations
carrying the higher designations. Issues rated B are regarded as having only an
adequate capacity for timely payment; however, such capacity may be damaged by
changing conditions or short-term adversities. 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 S&P 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.
DESCRIPTION OF NOTE RATINGS
An 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.
MIS Short-Term Loan Ratings -- MIS ratings for state and municipal short-
term obligations will be designated Moody's 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.
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.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS
Aerospace - 0.95%
Boeing Company (The) ................... 9,300 $ 401,063
Sundstrand Corporation ................. 8,600 436,450
Total ................................. 837,513
Airlines - 1.75%
AMR Corporation* ....................... 10,700 551,050
Southwest Airlines Co. ................. 43,950 988,875
Total ................................. 1,539,925
Automotive - 7.71%
Chrysler Corporation ................... 29,400 1,319,325
Daimler-Benz AG, ADS .................. 3,520 168,080
Dana Corporation ....................... 20,300 568,400
Eaton Corporation ...................... 13,300 631,750
Ford Motor Company ..................... 50,700 1,406,925
General Motors Corporation ............. 26,700 1,251,563
Magna International Group,
Inc., Class A ......................... 9,300 342,938
Standard Products Company (The) ........ 20,900 522,500
Superior Industries International, Inc. 14,300 412,913
Varity Corporation* .................... 4,200 156,975
Total ................................. 6,781,369
Banks and Savings and Loans - 3.18%
BankAmerica Corporation ................ 13,400 591,275
Citicorp ............................... 18,900 803,250
First Bank Systems, Inc. ............... 12,600 459,900
First Interstate Bancorp ............... 8,000 649,000
Midlantic Corporation .................. 10,700 296,251
Total ................................. 2,799,676
Beverages - 0.95%
PepsiCo, Inc. .......................... 25,100 831,438
Biotechnology and Medical Services - 1.08%
Medtronic, Inc. ........................ 10,600 560,475
Ventritex, Inc.* ....................... 19,800 391,050
Total ................................. 951,525
Building - 5.95%
Armstrong World Industries, Inc. ....... 18,600 806,775
Centex Corporation ..................... 33,200 767,750
Georgia-Pacific Corporation ............ 11,400 872,100
Louisiana-Pacific Corporation .......... 18,000 596,250
Pulte Corporation ...................... 36,100 785,175
Temple-Inland Inc. ..................... 9,300 513,825
Weyerhaeuser Company ................... 20,000 892,500
Total ................................. 5,234,375
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS(Continued)
Chemicals Major - 5.83%
Air Products & Chemicals, Inc. ......... 30,700 $ 1,435,225
du Pont (E.I.) de Nemours and Company .. 16,000 928,000
PPG Industries, Inc. ................... 33,400 1,323,475
Praxair, Inc. .......................... 26,700 650,813
Union Carbide Corporation .............. 23,400 795,600
Total ................................. 5,133,113
Chemicals Specialty and Miscellaneous Technology - 5.34%
Betz Laboratories, Inc. ................ 13,300 630,088
Geon Company (The) ..................... 40,700 1,221,000
Minnesota Mining and Manufacturing
Company ............................... 13,300 734,825
Polaroid Corporation ................... 37,400 1,313,675
Xerox Corporation ...................... 7,500 800,625
Total ................................. 4,700,213
Computers and Office Equipment - 3.28%
General Motors Corporation, Class E .... 26,700 1,014,600
International Business Machines
Corporation ........................... 13,800 959,100
Microsoft Corporation* ................. 8,000 449,496
Oracle Systems Corporation* ............ 10,700 461,438
Total ................................. 2,884,634
Consumer Electronics and Appliances - 1.02%
Harmon International Industries,
Incorporated .......................... 7,600 265,050
Whirlpool Corporation .................. 12,300 631,913
Total ................................. 896,963
Electrical Equipment - 2.48%
Emerson Electric Co. ................... 10,700 637,988
General Electric Company ............... 32,000 1,540,000
Total ................................. 2,177,988
Electronics - 7.86%
AMP Incorporated ....................... 14,700 1,137,413
Analog Devices, Inc.* .................. 40,600 1,339,800
Applied Materials, Inc.* ............... 23,100 1,074,150
cisco Systems, Inc.* ................... 26,700 732,568
Intel Corporation ...................... 20,400 1,257,150
LSI Logic Corporation* ................. 27,200 1,016,600
Novell, Inc.* .......................... 24,000 355,488
Total ................................. 6,913,169
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS(Continued)
Engineering and Construction - 1.02%
Fluor Corporation ...................... 10,700 $ 532,325
Foster Wheeler Corporation ............. 10,700 367,813
Total ................................. 900,138
Financial - 2.16%
Federal Home Loan Mortgage Corporation . 13,300 709,888
Federal National Mortgage Association .. 7,900 622,125
Household International, Inc. .......... 16,000 572,000
Total ................................. 1,904,013
Food and Related - 1.22%
CPC International Inc. ................. 13,300 673,313
Pet Incorporated ....................... 20,400 402,900
Total ................................. 1,076,213
Hospital Management - 1.05%
United HealthCare Corporation .......... 17,400 922,200
Household Products - 3.21%
Colgate-Palmolive Company .............. 16,000 928,000
Gillette Company (The) ................. 13,300 940,975
Procter & Gamble Company (The) ......... 16,000 954,000
Total.................................. 2,822,975
Leisure Time - 1.94%
Walt Disney Company (The) .............. 18,700 726,963
McDonald's Corporation ................. 37,400 981,750
Total ................................. 1,708,713
Machinery - 6.66%
Caterpillar Inc. ....................... 42,800 2,316,550
Clark Equipment Company* ............... 13,300 921,025
Deere & Company ........................ 18,300 1,255,838
Ingersoll-Rand Company ................. 10,700 378,513
Parker Hannifin Corporation ............ 10,700 426,663
Trinova Corporation .................... 16,000 558,000
Total ................................. 5,856,589
Metals and Mining - 0.53%
Phelps Dodge Corporation ............... 7,500 465,938
Multi-Industry - 1.79%
ITT Corporation ........................ 18,900 1,575,788
Paper - 2.17%
International Paper Company ............ 16,000 1,256,000
Union Camp Corporation ................. 13,300 653,363
Total ................................. 1,909,363
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS(Continued)
Railroads - 3.26%
CSX Corporation ........................ 9,300 $ 637,050
Conrail Inc. ........................... 16,000 792,000
Norfolk Southern Corporation ........... 8,000 498,000
Southern Pacific Rail Corporation* ..... 12,300 230,625
Union Pacific Corporation .............. 13,300 713,213
Total ................................. 2,870,888
Retailing - 10.17%
Circuit City Stores, Inc. .............. 42,700 1,104,863
Dayton Hudson Corporation .............. 12,400 948,600
Dillard Department Stores, Inc.,
Class A ............................... 25,400 679,450
Ethan Allen Interiors Inc.* ............ 8,000 181,000
Gap, Inc. (The) ........................ 18,700 614,763
Home Depot, Inc. (The) ................. 20,333 853,986
Limited, Inc. (The) .................... 20,700 406,238
May Department Stores Company (The) .... 26,700 1,051,313
Penney (J.C.) Company, Inc. ............ 18,000 929,250
Sears, Roebuck & Co. .................. 5,300 254,400
Spiegel, Inc., Class A ................. 11,000 198,000
Tommy Hilfiger Corporation* ............ 21,100 820,263
Toys "R" Us, Inc.* .................... 8,000 285,000
Wal-Mart Stores, Inc. .................. 26,700 624,113
Total ................................. 8,951,239
Services, Consumer and Business - 0.84%
Block (H&R), Inc. ...................... 16,000 734,000
Telecommunications - 6.64%
AT&T Corporation ....................... 13,300 718,200
General Instrument Corporation* ........ 26,600 758,100
MCI Communications Corporation ......... 26,700 677,513
Motorola, Inc. ......................... 45,400 2,394,850
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 13,300 713,213
Vanguard Cellular Systems, Inc.* ....... 22,200 582,750
Total ................................. 5,844,626
Tire and Rubber - 1.05%
Goodyear Tire & Rubber Company (The) ... 27,600 921,150
Trucking - 0.78%
Ryder System, Inc. ..................... 26,700 684,188
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1994
Value
TOTAL COMMON STOCKS - 91.87% $80,829,922
(Cost: $76,726,448)
TOTAL SHORT-TERM SECURITIES - 7.20% $ 6,339,000
(Cost: $6,339,000)
TOTAL INVESTMENT SECURITIES - 99.07% $87,168,922
(Cost: $83,065,448)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.93% 817,665
NET ASSETS - 100.00% $87,986,587
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS
Airlines - 2.53%
AMR Corporation* ....................... 8,100 $ 461,700
Southwest Airlines Co. ................. 33,550 1,098,763
Total ................................. 1,560,463
Automotive - 8.88%
Chrysler Corporation ................... 22,300 1,151,238
Daimler-Benz AG, ADS .................. 2,800 142,450
Dana Corporation ....................... 7,700 440,825
Eaton Corporation ...................... 10,100 584,538
Ford Motor Company ..................... 19,300 1,133,875
General Motors Corporation ............. 14,400 777,600
Magna Group, Inc., Class A ............. 7,100 333,700
Superior Industries International, Inc. 5,300 184,838
Varity Corporation* .................... 4,200 175,875
Volvo AB, ADR, Class B ................ 7,200 559,346
Total ................................. 5,484,285
Banks and Savings and Loans - 7.02%
Banc One Corporation ................... 9,952 328,416
BankAmerica Corporation ................ 10,200 401,625
Chase Manhattan Corporation ............ 17,200 556,850
Chemical Banking Corporation ........... 12,700 461,963
Citicorp* .............................. 20,300 761,250
First Bank Systems, Inc. ............... 12,400 396,800
First Fidelity Bancorporation .......... 6,100 446,825
Midlantic Corporation* ................. 12,200 348,456
NationsBank Corporation ................ 7,900 361,425
PNC Financial Corp. .................... 10,100 268,913
Total ................................. 4,332,523
Beverages - 2.35%
Cott Corporation ...................... 10,000 248,750
PepsiCo, Inc. .......................... 26,400 966,900
Whitman Corporation .................... 15,500 234,438
Total ................................. 1,450,088
Biotechnology and Medical Services - 0.95%
Medtronic, Inc. ........................ 4,100 328,000
Ventritex, Inc.* ....................... 12,300 258,300
Total ................................. 586,300
Building - 3.71%
Armstrong World Industries, Inc. ....... 14,100 761,400
Centex Corporation ..................... 5,600 172,900
Georgia-Pacific Corporation ............ 4,100 262,400
Louisiana-Pacific Corporation .......... 4,100 148,113
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS(Continued)
Building (Continued)
Pulte Corporation ...................... 6,000 $ 174,000
Stanley Works (The) .................... 3,000 118,125
Temple-Inland Inc. ..................... 7,100 324,825
Weyerhaeuser Company ................... 7,600 328,700
Total ................................. 2,290,463
Chemicals Major - 4.96%
Air Products & Chemicals, Inc. ......... 16,200 722,925
du Pont (E. I.) de Nemours and Company . 12,200 646,600
PPG Industries, Inc. ................... 12,700 944,563
Praxair, Inc. .......................... 20,300 352,713
Union Carbide Corporation .............. 17,700 398,250
Total ................................. 3,065,051
Chemicals Specialty and Miscellaneous Technology - 5.11%
Betz Laboratories, Inc. ................ 5,700 286,425
Ferro Corporation ...................... 8,000 248,000
Geon Company (The) ..................... 25,000 659,375
Minnesota Mining and Manufacturing
Company ............................... 5,100 505,538
Polaroid Corporation ................... 28,400 905,250
Xerox Corporation ...................... 5,700 544,350
Total ................................. 3,148,938
Computers and Office Equipment - 1.13%
General Motors Corporation, Class E .... 20,300 695,275
Consumer Electronics and Appliances - 2.12%
Harmon International Industries,
Incorporated* ......................... 7,600 210,900
Maytag Corporation ..................... 24,300 455,625
Rival Company (The) .................... 3,800 78,375
Whirlpool Corporation .................. 9,300 564,975
Total ................................. 1,309,875
Electrical Equipment - 2.75%
Emerson Electric Co. ................... 8,100 480,938
General Electric Company ............... 12,200 1,215,425
Total ................................. 1,696,363
Electronics - 7.37%
AMP Incorporated* ...................... 11,200 674,800
Analog Devices, Inc.* .................. 10,600 275,600
Applied Materials, Inc.* ............... 18,300 816,638
Intel Corporation ...................... 15,500 1,044,313
Motorola, Inc. ......................... 17,200 1,741,500
Total ................................. 4,552,851
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS(Continued)
Engineering and Construction - 1.18%
Fluor Corporation ...................... 8,100 $ 405,000
Foster Wheeler Corporation ............. 8,100 324,000
Total ................................. 729,000
Financial - 2.17%
Federal Home Loan Mortgage Corporation . 10,100 512,575
Federal National Mortgage Association .. 6,000 466,500
Household International, Inc. .......... 12,200 361,425
Total ................................. 1,340,500
Food and Related - 1.23%
CPC International Inc. ................. 10,100 478,488
Pet Incorporated ....................... 15,500 279,000
Total ................................. 757,488
Household Products - 3.76%
Avon Products, Inc. .................... 5,700 322,050
Colgate-Palmolive Company .............. 12,200 706,075
Gillette Company (The) ................. 10,100 638,825
Procter & Gamble Company (The) ......... 12,200 654,225
Total.................................. 2,321,175
Leisure Time - 2.27%
Walt Disney Company (The) .............. 14,200 594,625
McDonald's Corporation ................. 14,200 807,625
Total ................................. 1,402,250
Machinery - 7.45%
Caterpillar Inc. ....................... 16,200 1,820,475
Clark Equipment Company* ............... 10,100 598,425
Deere & Company ........................ 13,900 1,167,600
Ingersoll-Rand Company ................. 8,100 301,725
Parker Hannifin Corporation ............ 8,100 286,538
Trinova Corporation .................... 12,200 422,425
Total ................................. 4,597,188
Metals and Mining - 0.48%
Phelps Dodge Corporation ............... 5,700 297,825
Multi-Industry - 1.83%
ITT Corporation ........................ 13,200 1,131,900
Paper - 2.09%
International Paper Company ............ 8,100 551,813
James River Corporation of Virginia .... 16,200 293,625
Union Camp Corporation ................. 10,100 446,925
Total ................................. 1,292,363
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS(Continued)
Railroads - 3.97%
CSX Corporation ........................ 7,100 $ 582,200
Conrail Inc. ........................... 12,200 704,550
Norfolk Southern Corporation ........... 6,100 394,213
Southern Pacific Rail Corporation* ..... 9,500 199,500
Union Pacific Corporation .............. 10,100 573,175
Total ................................. 2,453,638
Retailing - 10.01%
Circuit City Stores, Inc. .............. 32,500 645,938
Dayton Hudson Corporation .............. 9,400 686,200
Dillard Department Stores, Inc.,
Class A ............................... 19,300 646,550
Ethan Allen Interiors Inc.* ............ 8,000 208,000
Gap, Inc. (The) ........................ 14,200 630,125
Home Depot, Inc. (The) ................. 15,533 632,970
May Department Stores Company (The) .... 20,300 844,988
Penney (J. C.) Company, Inc. ........... 13,700 724,388
Sears, Roebuck & Co. .................. 4,100 176,300
Spiegel, Inc., Class A ................. 11,000 248,875
Toys "R" Us, Inc.* .................... 6,100 211,975
Wal-Mart Stores, Inc. .................. 20,300 525,263
Total ................................. 6,181,572
Services, Consumer and Business - 0.85%
Block (H&R), Inc. ...................... 12,200 524,600
Steel - 1.20%
Bethlehem Steel Corporation* ........... 7,300 146,000
Inland Steel Industries, Inc.* ......... 7,300 219,913
USX Corporation - U.S. Steel Group ..... 10,100 374,963
Total ................................. 740,876
Telecommunications - 3.14%
American Telephone and Telegraph
Company ............................... 10,100 517,625
General Instrument Corporation* ........ 5,100 242,250
MCI Communications Corporation ......... 20,300 475,771
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 10,100 424,826
Vanguard Cellular Systems, Inc.* ....... 9,500 276,688
Total ................................. 1,937,160
Tire and Rubber - 1.10%
Goodyear Tire & Rubber Company (The) ... 16,700 676,350
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS(Continued)
Trucking - 0.81%
Ryder System, Inc. ..................... 20,300 $ 502,425
TOTAL COMMON STOCKS - 92.42% $57,058,785
(Cost: $53,957,175)
TOTAL SHORT-TERM SECURITIES - 4.54% $ 2,800,011
(Cost: $2,800,011)
TOTAL INVESTMENT SECURITIES - 96.96% $59,858,796
(Cost: $56,757,186)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.04% 1,876,491
NET ASSETS - 100.00% $61,735,287
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS
Automotive - 2.64%
Automotive Industries Holdings, Inc.* .. 22,500 $ 542,813
Gentex Corporation* .................... 20,000 472,500
Superior Industries International, Inc. 25,000 721,875
Total ................................. 1,737,188
Biotechnology and Medical Services - 4.36%
American Healthcorp, Inc.* ............. 30,000 225,000
Pyxis Corporation* .................... 40,000 985,000
St. Jude Medical, Inc. ................. 10,000 358,750
Tecnol Medical Products, Inc.* ......... 15,600 230,100
Ventritex, Inc.* ....................... 45,000 888,750
Zoll Medical Corporation* .............. 20,000 180,000
Total ................................. 2,867,600
Building - 0.88%
NCI Building Systems, Inc.* ............ 30,000 577,500
Computers and Office Equipment - 23.76%
America Online, Inc.* .................. 25,000 1,712,500
Broderbund Software, Inc.* ............. 23,000 1,224,750
Cerner Corporation* .................... 22,000 896,500
DSP Group, Inc.* ...................... 30,000 656,250
FORE Systems, Inc.* .................... 15,000 671,250
Health Management Systems, Inc.* ...... 20,000 517,500
Integrated Silicon Systems, Inc.* ..... 15,500 449,500
Intuit* ............................... 20,000 880,000
Learning Company (The)* ................ 37,600 752,000
Macromedia, Inc.* ..................... 30,000 461,250
MapInfo Corporation* ................... 50,000 1,000,000
MEDSTAT Group (The)* ................... 25,000 375,000
Microsoft Corporation* ................. 10,000 561,870
Minnesota Educational Computing
Corporation* .......................... 40,000 560,000
Parametric Technology Corporation* ..... 35,000 1,155,000
ParcPlace Systems, Inc.* .............. 5,000 105,000
Pinnacle Micro, Inc.* .................. 20,000 267,500
QuickResponse Services, Inc.* .......... 15,000 228,750
Synopsys, Inc.* ........................ 20,000 910,000
SystemSoft Corporation* ................ 60,000 348,720
Wall Data Incorporated* ................ 30,000 993,750
Wonderware Corporation* ............... 43,000 897,625
Total ................................. 15,624,715
Drugs and Hospital Supply - 1.54%
Circa Pharmaceuticals, Inc.* ........... 40,000 610,000
OmniCare, Inc. ......................... 10,000 401,250
Total ................................. 1,011,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS (Continued)
Electronics - 2.18%
Atmel Corporation* .................... 10,000 $ 314,370
Cascade Communications Corp.* .......... 10,000 471,250
Digital Link Corporation* ............. 30,000 393,750
Level One Communications, Incorporated* 8,100 256,163
Total ................................. 1,435,533
Financial - 0.72%
Regional Acceptance Corporation* ....... 35,000 472,500
Hospital Management - 4.34%
Quorum Health Group, Inc.* ............. 20,500 386,938
Sierra Health Services, Inc.* ......... 40,000 1,030,000
United HealthCare Corporation .......... 10,000 530,000
Vencor, Incorporated* .................. 20,000 910,000
Total ................................. 2,856,938
Machinery - 0.56%
Cognex Corporation* .................... 20,000 367,500
Retailing - 6.11%
Books-A-Million, Inc.* ................. 50,000 681,250
Hollywood Entertainment Corporation* ... 47,000 1,304,250
Leslie's Poolmart* .................... 25,200 327,600
Tractor Supply Company* ............... 20,000 555,000
Williams-Sonoma, Inc.* ................ 33,750 1,151,719
Total ................................. 4,019,819
Services, Consumer and Business - 2.82%
Block (H&R), Inc. ...................... 13,000 596,375
Fusion Systems Corporation* ............ 20,000 642,500
Stewart Enterprises, Inc., Class A ..... 25,000 612,500
Total ................................. 1,851,375
Telecommunications - 1.04%
MFS Communications Company, Inc.* ...... 20,000 685,000
Textiles and Apparel - 1.19%
Department 56, Inc.* ................... 20,000 780,000
Trucking - 1.14%
Heartland Express, Inc.* ............... 25,000 750,000
TOTAL COMMON STOCKS - 53.28% $35,036,918
(Cost: $29,711,356)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.88%
U.S. Bancorp,
Master Note ........................... $1,238 $ 1,238,000
Building - 3.03%
Weyerhaeuser Company,
4.78%, 10-21-94........................ 2,000 1,994,689
Consumer Electronics and Appliances - 3.03%
TDK (USA) Corp.,
4.8%, 10-20-94 ........................ 2,000 1,994,933
Drugs and Hospital Supply - 3.79%
Warner-Lambert Company,
4.75%, 11-1-94 ........................ 2,500 2,489,774
Electrical Equipment - 3.27%
General Electric Capital Corporation,
4.75%, 10-11-94 ....................... 2,150 2,147,163
Electronics - 3.71%
Motorola, Inc.,
4.78%, 10-24-94 ....................... 2,450 2,442,518
Financial - 10.59%
Associates Corporation of North America,
Master Note ........................... 859 859,000
Ford Motor Credit Company,
4.8%, 10-31-94 ........................ 2,000 1,992,000
International Business Machines Credit
Corporation,
4.76%, 10-5-94 ........................ 2,045 2,043,919
PHH Corp.,
4.9%, 10-26-94 ........................ 2,075 2,067,939
Total ................................. 6,962,858
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Food and Related - 3.27%
Sara Lee Corporation,
Master Note ........................... $2,148 $ 2,148,000
Machinery - 3.68%
Cooper Industries, Inc.,
4.75%, 10-12-94 ....................... 2,425 2,421,480
Public Utilities - Electric - 1.51%
Southern California Edison Company,
4.81%, 11-14-94 ....................... 1,000 994,121
Services, Consumer and Business - 6.27%
Hertz Corp.,
4.77%, 10-25-94 ....................... 4,135 4,121,851
Telecommunications - 3.03%
NYNEX Corp.,
4.85%, 11-7-94 ........................ 2,000 1,990,031
TOTAL SHORT-TERM SECURITIES - 47.06% $30,945,418
(Cost: $30,945,418)
TOTAL INVESTMENT SECURITIES - 100.34% $65,982,336
(Cost: $60,656,774)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.34%) (222,357)
NET ASSETS - 100.00% $65,759,979
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS
Automotive - 3.10%
Automotive Industries Holdings, Inc.* .. 12,500 $ 375,000
Gentex Corporation* .................... 20,000 452,500
Superior Industries International, Inc. 15,000 523,125
Total ................................. 1,350,625
Biotechnology and Medical Services - 4.92%
American Healthcorp, Inc.* ............. 30,000 420,000
Pyxis Corporation* .................... 25,000 656,250
Tecnol Medical Products, Inc.* ......... 10,600 139,125
Ventritex, Inc.* ....................... 30,000 630,000
Zoll Medical Corporation* .............. 10,000 293,750
Total ................................. 2,139,125
Building - 0.75%
NCI Building Systems, Inc.* ............ 20,000 327,500
Computers and Office Equipment - 20.67%
America Online, Inc.* .................. 12,000 859,500
BMC Software* .......................... 10,000 616,250
Broderbund Software, Inc.* ............. 13,000 531,375
Cerner Corporation* .................... 12,000 498,000
DSP Group, Inc.* ...................... 30,000 483,750
Health Management Systems, Inc.* ...... 20,000 455,000
Integrated Silicon Systems, Inc.* ..... 15,500 364,250
Intuit* ............................... 15,000 549,375
Macromedia, Inc.* ..................... 3,500 51,625
MapInfo Corporation* ................... 2,500 59,063
MEDSTAT Group (The)* ................... 25,000 384,375
Microsoft Corporation* ................. 10,000 850,000
Parametric Technology Corporation* ..... 25,000 684,375
ParcPlace Systems, Inc.* .............. 5,000 101,250
PeopleSoft, Inc.* ...................... 3,000 103,125
Pinnacle Micro, Inc.* .................. 20,000 315,000
QuickResponse Services, Inc.* .......... 15,000 320,625
Sterling, Software* ................... 20,000 577,500
Wall Data Incorporated* ................ 15,000 667,500
Wonderware Corporation* ............... 30,000 525,000
Total ................................. 8,996,938
Drugs and Hospital Supply - 1.90%
Circa Pharmaceuticals, Inc.* ........... 40,000 470,000
Copley Pharmaceutical, Inc.* ........... 15,000 358,125
Total ................................. 828,125
Electronics - 9.83%
ALANTEC Corporation* .................. 8,600 141,358
Applied Materials, Inc.* ............... 10,000 446,250
Atmel Corporation* .................... 10,000 424,370
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS (Continued)
Electronics (Continued)
Digital Link Corporation* ............. 30,000 $ 465,000
Gasonics International Corporation.* .. 25,000 334,375
LSI Logic Corporation* ................. 20,000 400,000
Lam Research* .......................... 15,000 468,750
Level One Communications, Incorporated* 8,100 157,950
Megatest Corporation* .................. 15,000 271,875
Micron Technology, Inc.* .............. 13,000 1,085,500
TriQuint Semiconductor, Inc.* ......... 5,000 81,250
Total ................................. 4,276,678
Financial - 0.99%
Regional Acceptance Corporation* ....... 35,000 428,750
Hospital Management - 5.52%
Intergroup Healthcare Corporation* ..... 12,000 543,000
Sierra Health Services, Inc.* ......... 30,000 761,250
United HealthCare Corporation .......... 10,000 427,500
Vencor, Incorporated* .................. 20,000 670,000
Total ................................. 2,401,750
Household Products - 0.65%
Valence Technology, Inc.* ............. 20,000 285,000
Leisure Time - 0.27%
Cobra Golf Incorporated* ............... 4,100 117,363
Machinery - 0.95%
Cognex Corporation* .................... 20,000 412,500
Railroad Equipment - 0.42%
Atchison Casting Corporation* .......... 12,500 184,375
Retailing - 6.75%
Bombay Company, Inc.* .................. 17,150 426,606
Books-A-Million, Inc.* ................. 25,000 512,500
Leslie's Poolmart* .................... 14,000 157,500
Sunglass Hut International, Inc.* ...... 20,000 665,000
Tractor Supply Company* ............... 20,000 460,000
Williams-Sonoma, Inc.* ................ 22,500 714,375
Total ................................. 2,935,981
Services, Consumer and Business - 2.11%
Stewart Enterprises, Inc., Class A ..... 25,000 596,875
Thomas Group, Inc.* ................... 20,000 320,000
Total ................................. 916,875
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1994
Shares Value
COMMON STOCKS (Continued)
Steel - 0.86%
Huntco Inc., Class A .................. 15,000 $ 375,000
Telecommunications - 2.33%
Glenayre Technologies, Inc.* ........... 20,000 727,500
MFS Communications Company, Inc.* ...... 10,000 288,750
Total ................................. 1,016,250
Trucking - 1.94%
Heartland Express, Inc.* ............... 20,000 682,500
TRISM, Inc.* .......................... 10,000 163,750
Total ................................. 846,250
TOTAL COMMON STOCKS - 63.96% $27,839,085
(Cost: $26,016,539)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.80%
U.S. Bancorp,
Master Note ........................... $1,653 1,653,000
Beverages - 2.18%
PepsiCo, Inc.,
3.55%, 4-4-94.......................... 950 949,719
Building - 2.30%
Weyerhaeuser Company,
3.56%, 4-4-94.......................... 1,000 999,703
Computers and Office Equipment - 1.72%
Electronic Data Systems Corp.,
3.75%, 5-13-94......................... 750 746,719
Drugs and Hospital Supply - 3.65%
American Cyanamid Co.,
3.8%, 6-6-94........................... 1,600 1,588,853
Financial - 12.26%
Associates Corporation of North America,
Master Note ........................... 1,992 1,992,000
B.A.T. Capital Corp.,
3.35%, 4-4-94.......................... 1,300 1,299,637
BHP Finance (U.S.A.) Inc.,
3.57%, 4-18-94 ........................ 1,050 1,048,230
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Financial (Continued)
Textron Financial Corp.,
3.8%, 5-3-94........................... $1,000 $ 996,622
Total ................................. 5,336,489
Food and Related - 4.08%
Sara Lee Corporation,
Master Note ........................... 1,778 1,778,000
Household Products - 1.38%
Procter & Gamble Co.,
3.5%, 4-8-94........................... 600 599,592
Publishing and Advertising - 1.03%
American Greetings Corp.,
3.6%, 4-26-94.......................... 450 448,875
Telecommunications - 3.28%
Siemens Corp.,
3.47%, 4-7-94.......................... 1,430 1,429,173
TOTAL SHORT-TERM SECURITIES - 35.68% $15,530,123
(Cost: $15,530,123)
TOTAL INVESTMENT SECURITIES - 99.64% $43,369,208
(Cost: $41,546,662)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.36% 155,069
NET ASSETS - 100.00% $43,524,277
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Airlines - 2.80%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $310 $ 329,310
Banks and Savings and Loans - 4.86%
First Chicago Corporation,
9.875%, 7-1-99 ........................ 250 268,573
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 302,172
Total ................................. 570,745
Building - 3.40%
Masco Corporation,
6.25%, 6-15-95 ........................ 400 399,868
Chemicals Specialty and Miscellaneous
Technology - 3.41%
Eastman Kodak Company,
9.125%, 3-1-98 ........................ 200 202,248
Polaroid Corporation,
7.25%, 1-15-97......................... 200 198,148
Total ................................. 400,396
Domestic Oil - 3.13%
BP America Inc.,
9.5%, 1-1-98 .......................... 150 158,429
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 209,980
Total ................................. 368,409
Financial - 12.06%
Avco Financial Services,
7.375%, 8-15-2001 ..................... 300 291,153
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 233 226,947
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 48,443
7.75%, 1-15-99 ........................ 300 298,599
Household Finance Corporation,
9.0%, 9-28-2001 ....................... 285 295,776
United States Leasing International Inc.,
8.75%, 5-1-96 ......................... 250 257,048
Total ................................. 1,417,966
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Related - 2.12%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ $236 $ 249,622
Insurance - 3.02%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 350 354,648
International Oil - 1.72%
Chevron Corp.,
8.11%, 12-1-2004 ...................... 200 201,718
Multi-Industry - 3.60%
ITT Corporation,
8.375%, 3-15-96 ....................... 415 423,528
Public Utilities - Electric - 0.85%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 99,697
Public Utilities - Pipelines - 2.72%
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 320,103
Railroads - 2.61%
CSX Corporation,
8.4%, 8-1-96 .......................... 300 306,600
Retailing - 5.78%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 100 103,782
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 250 267,650
Sears, Roebuck and Co.,
8.55%, 8-1-96 ......................... 300 307,380
Total ................................. 678,812
Telecommunications - 3.95%
GTE Corporation,
8.85%, 3-1-98 ......................... 350 361,799
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 102,324
Total ................................. 464,123
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textiles and Apparel - 2.66%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... $318 $ 312,651
TOTAL CORPORATE DEBT SECURITIES - 58.69% $ 6,898,196
(Cost: $7,106,632)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 100 99,843
5.75%, 7-15-2006 ...................... 250 232,420
5.5%, 4-15-2013 ....................... 100 95,906
5.5%, 9-15-2013 ....................... 100 96,875
6.4%, 2-15-2018 ....................... 250 230,078
Federal National Mortgage Association:
8.0%, 2-1-2008 ........................ 356 355,200
6.0%, 1-1-2009 ........................ 376 342,206
6.0%, 2-1-2009 ........................ 379 344,079
6.0%, 6-25-2014 ....................... 200 198,186
7.0%, 9-25-2020 ....................... 71 70,483
Government National Mortgage Association,
6.5%, 10-15-2008 ...................... 295 274,109
United States Treasury:
6.875%, 4-30-97 ....................... 400 400,688
5.625%, 8-31-97 ....................... 400 386,812
5.375%, 5-31-98 ....................... 300 283,452
5.125%, 11-30-98 ...................... 300 278,016
5.5%, 4-15-2000........................ 300 275,673
6.375%, 8-15-2002 ..................... 400 372,748
6.25%, 2-15-2003 ...................... 400 367,564
TOTAL UNITED STATES GOVERNMENT SECURITIES - 40.03% $ 4,704,338
(Cost: $4,992,892)
TOTAL SHORT-TERM SECURITIES - 3.92% $ 461,000
(Cost: $461,000)
TOTAL INVESTMENT SECURITIES - 102.64% $12,063,534
(Cost: $12,560,524)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.64%) (310,264)
NET ASSETS - 100.00% $11,753,270
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Airlines - 2.81%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $296 $ 327,639
Automotive - 0.39%
Ford Motor Company,
6.27%, 1-2-2000 ....................... 45 45,106
Banks and Savings and Loans - 3.70%
First Chicago Corporation,
9.875%, 7-1-99 ........................ 150 168,479
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 250 263,668
Total ................................. 432,147
Building - 3.46%
Masco Corporation,
6.25%, 6-15-95 ........................ 400 404,620
Chemicals Specialty and Miscellaneous
Technology - 1.74%
Polaroid Corporation,
7.25%, 1-15-97......................... 200 202,980
Domestic Oil - 3.27%
BP America Inc.,
9.5%, 1-1-98 .......................... 150 164,237
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 217,774
Total ................................. 382,011
Drugs and Hospital Supply - 1.28%
Baxter International Inc.,
5.0%, 10-1-95 ......................... 150 148,821
Financial - 7.89%
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 304 300,216
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 49,465
7.75%, 1-15-99 ........................ 300 307,401
United States Leasing International Inc.,
8.75%, 5-1-96 ......................... 250 263,968
Total ................................. 921,050
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food and Related - 2.22%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ $236 $ 259,397
Insurance - 3.58%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 350 364,329
SAFECO Corporation,
10.75%, 9-15-95 ....................... 50 53,748
Total ................................. 418,077
Multi-Industry - 3.72%
ITT Corporation,
8.375%, 3-15-96 ....................... 415 434,053
Public Utilities - Electric - 0.86%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 100,430
Public Utilities - Pipelines - 2.82%
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 329,344
Railroads - 2.69%
CSX Corporation,
8.4%, 8-1-96 .......................... 300 314,223
Retailing - 5.71%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 100 107,592
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 250 278,115
Sears, Roebuck and Co.,
8.55%, 8-1-96 ......................... 266 280,337
Total ................................. 666,044
Telecommunications - 4.06%
GTE Corporation,
8.85%, 3-1-98 ......................... 250 267,185
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 105,297
US WEST Financial Services, Inc.,
6.75%, 11-24-97 ....................... 100 101,116
Total ................................. 473,598
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textiles and Apparel - 2.79%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... $318 $ 325,123
TOTAL CORPORATE DEBT SECURITIES - 52.99% $ 6,184,663
(Cost: $6,260,016)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 100 101,187
5.75%, 7-15-2006 ...................... 250 232,890
6.0%, 1-1-2009 ........................ 389 366,664
6.0%, 2-1-2009 ........................ 391 368,199
5.5%, 4-15-2013 ....................... 100 97,500
5.5%, 9-15-2013 ....................... 100 99,406
6.4%, 2-15-2018 ....................... 250 241,483
Federal National Mortgage Association:
8.0%, 2-1-2008 ........................ 390 400,980
6.0%, 6-25-2014 ....................... 200 200,750
7.0%, 9-25-2020 ....................... 94 95,552
Government National Mortgage Association,
6.5%, 10-15-2008 ...................... 302 292,383
United States Treasury:
8.5%, 5-15-95 ......................... 300 312,141
4.0%, 1-31-96 ......................... 300 294,141
6.875%, 4-30-97 ....................... 400 412,812
5.625%, 8-31-97 ....................... 400 397,188
5.375%, 5-31-98 ....................... 300 292,218
5.125%, 11-30-98 ...................... 300 287,061
5.5%, 4-15-2000........................ 200 191,250
6.25%, 2-15-2003 ...................... 300 289,452
TOTAL UNITED STATES GOVERNMENT SECURITIES - 42.61% $ 4,973,257
(Cost: $5,124,836)
TOTAL SHORT-TERM SECURITIES - 0.93% $ 108,000
(Cost: $108,000)
TOTAL INVESTMENT SECURITIES - 96.53% $11,265,920
(Cost: $11,492,852)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.47% 405,215
NET ASSETS - 100.00% $11,671,135
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.98%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 253,463
ARKANSAS - 1.40%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 359,500
CALIFORNIA - 3.26%
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 451,250
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 388,125
Total ................................. 839,375
COLORADO - 4.05%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1994A,
7.4%, 11-15-2004 ...................... 1,000 992,500
Series 1991A,
0.0%, 11-15-2003 ...................... 100 50,250
Total ................................. 1,042,750
DISTRICT OF COLUMBIA - 3.92%
Certificates of Participation,
Series 1993, Issued by Security Trust
Company, N.A., As Trustee, District of
Columbia,
7.3%, 1-1-2013 ........................ 1,000 1,010,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA - 4.84%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... $ 965 $ 855,231
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 264,375
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project), Second
Series 1992,
6.75%, 7-1-2022 ....................... 125 127,500
Total ................................. 1,247,106
GEORGIA - 1.90%
Hospital Authority of Savannah, Revenue Bonds,
Candler Hospital, Series 1992,
7.0%, 1-1-2023 ........................ 500 488,125
GUAM - 0.91%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 234,063
ILLINOIS - 6.49%
Illinois Health Facilities Authority,
Revenue Bonds, Series 1993 (OSF
Healthcare System),
5.75%, 11-15-2007 ..................... 700 658,000
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 438,750
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 378,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS (Continued)
The Illinois State Toll Highway Authority,
Toll Highway Priority Revenue Bonds,
1992 Series A,
6.375%, 1-1-2015 ...................... $ 200 $ 196,500
Total ................................. 1,671,250
INDIANA - 5.33%
Indiana State Office Building Commission,
Capitol Complex Revenue Bonds (State
Office Building I Facility),
Series 1990B,
7.4%, 7-1-2015 ........................ 500 554,375
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 500 461,250
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 356,000
Total ................................. 1,371,625
IOWA - 1.25%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 321,725
KANSAS - 5.04%
City of Lawrence, Kansas, Hospital Revenue
Bonds, Series 1994 (The Lawrence Memorial
Hospital),
6.2%, 7-1-2019 ........................ 1,125 1,072,969
City of Lawrence, Kansas, Multifamily
Housing Development Revenue Refunding
Bonds (Brandon Woods, Inc. Project),
Series 1993,
6.625%, 4-1-2012 ...................... 225 225,281
Total ................................. 1,298,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
LOUISIANA - 2.74%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... $ 200 $ 203,000
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 200,750
Louisiana Public Facilities Authority,
Student Loan Revenue Bonds,
Series 1992A-2,
6.75%, 9-1-2006 ....................... 300 303,000
Total ................................. 706,750
MARYLAND - 7.37%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 843,750
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery
County Resource Recovery Project),
Series 1993A,
6.2%, 7-1-2010 ........................ 665 634,244
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... 500 419,375
Total ................................. 1,897,369
MICHIGAN - 3.18%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 820,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MISSOURI - 4.61%
The Junior College District of Metropolitan
Kansas City, Missouri, Lease Certificates
of Participation (Longview Recreation
Complex Project), Series 1994,
6.125%, 7-1-2014 ...................... $1,000 $ 945,000
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 241,563
Total ................................. 1,186,563
MONTANA - 0.37%
Anaconda-Deer Lodge County, Montana,
Solid Waste Facility Revenue Bonds
(ARCO-Anaconda Smelter Site Project),
Series 1992,
6.375%, 10-1-2016 ..................... 100 96,125
NEBRASKA - 1.86%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ 500 480,000
NEW JERSEY - 2.45%
New Jersey Economic Development Authority,
Economic Growth Bonds, Richard L.
Tauber Composite Issue-1993
Series A,
5.4%, 10-1-2013 ....................... 700 631,750
NEW MEXICO - 4.87%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,254,375
NEW YORK - 5.59%
The City of New York, General Obligation
Bonds, Fiscal 1994 Series D:
5.75%, 8-15-2012 ...................... 500 443,750
5.75%, 8-15-2007 ...................... 400 370,000
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1993,
5.25%, 4-1-2013 ....................... 500 430,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW YORK (Continued)
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ $ 200 $ 195,250
Total ................................. 1,439,000
OHIO - 2.91%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 748,125
OKLAHOMA - 2.62%
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 474,375
6.6%, 7-1-2014 ........................ 200 201,250
Total ................................. 675,625
TEXAS - 7.10%
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 1,031,250
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 701,000
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 100 95,500
Total ................................. 1,827,750
VIRGINIA - 3.61%
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 ....................... 1,000 928,750
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WASHINGTON - 4.31%
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds:
Series 1994B,
7.375%, 7-1-2004 ...................... $ 500 $ 545,625
Series 1989A,
6.0%, 7-1-2017 ........................ 450 412,875
Public Utility District No. 2 of Grant
County, Washington, Wanapum
Hydroelectric Development, Second Series
Revenue Bonds, 1992B,
6.75%, 1-1-2023 ....................... 150 151,125
Total ................................. 1,109,625
TOTAL MUNICIPAL BONDS - 92.96% $23,939,039
(Cost: $25,379,543)
TOTAL SHORT-TERM SECURITIES - 4.68% $ 1,206,000
(Cost: $1,206,000)
TOTAL INVESTMENT SECURITIES - 97.64% $25,145,039
(Cost: $26,585,543)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.36% 607,980
NET ASSETS - 100.00% $25,753,019
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 2.06%
City of Phoenix, Civic Improvement Corporation,
Wastewater System Lease Revenue Bonds,
Series 1993,
6.125%, 7-1-2023 ...................... $ 250 $ 265,000
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ 270 250,088
Total ................................. 515,088
ARKANSAS - 4.16%
Solid Waste Disposal Revenue Bonds
(International Paper Company Projects),
City of Pine Bluff, Arkansas,
5.55%, 10-1-2017 ...................... 500 443,750
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 356,500
Pulaski County, Arkansas, Hospital Revenue
Bonds (Arkansas Children's Hospital Project),
Series 1993,
6.2%, 3-1-2022 ........................ 250 237,813
Total ................................. 1,038,063
CALIFORNIA - 3.40%
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 456,875
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 391,875
Total ................................. 848,750
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
COLORADO - 1.17%
City and County of Denver, Colorado,
Airport System Revenue Bonds:
Series 1992C,
6.75%, 11-15-2013 ..................... $ 250 $ 239,375
Series 1991A,
0.0%, 11-15-2003 ...................... 100 52,375
Total ................................. 291,750
FLORIDA - 1.62%
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 274,125
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project),
Second Series 1992,
6.75%, 7-1-2022 ....................... 125 128,906
Total ................................. 403,031
GEORGIA - 3.82%
Hospital Authority of Savannah, Revenue Bonds:
Candler Hospital, Series 1992,
7.0%, 1-1-2023 ........................ 500 481,250
Saint Joseph's Hospital Project,
Series 1993,
6.2%, 7-1-2023 ........................ 500 472,500
Total ................................. 953,750
GUAM - 0.96%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 239,063
ILLINOIS - 7.60%
Illinois Health Facilities Authority,
Revenue Bonds, Series 1993 (OSF
Healthcare System),
5.75%, 11-15-2007 ..................... 700 666,750
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 450,625
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 383,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS (Continued)
Metropolitan Pier and Exposition Authority
(Illinois), McCormick Place Expansion
Project Bonds, Series 1992A,
6.5%, 6-15-2027 ....................... $ 200 $ 198,750
The Illinois State Toll Highway Authority,
Toll Highway Priority Revenue Bonds,
1992 Series A,
6.375%, 1-1-2015 ...................... 200 198,250
Total ................................. 1,897,875
INDIANA - 5.54%
Indiana State Office Building Commission,
Capitol Complex Revenue Bonds (State
Office Building I Facility),
Series 1990B,
7.4%, 7-1-2015 ........................ 500 561,250
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 500 463,750
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 358,000
Total ................................. 1,383,000
IOWA - 1.29%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 322,575
KANSAS - 0.91%
City of Lawrence, Kansas, Multifamily
Housing Development Revenue Refunding
Bonds (Brandon Woods, Inc. Project),
Series 1993,
6.625%, 4-1-2012 ...................... 225 227,813
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
LOUISIANA - 2.86%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... $ 200 $ 208,500
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 203,000
Louisiana Public Facilities Authority,
Student Loan Revenue Bonds,
Series 1992A-2,
6.75%, 9-1-2006 ....................... 300 302,625
Total ................................. 714,125
MARYLAND - 7.81%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 866,250
Northeast Maryland Waste Disposal Authority,
Solid Waste Revenue Bonds (Montgomery
County Resource Recovery Project),
Series 1993A,
6.2%, 7-1-2010 ........................ 665 638,400
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... 500 444,375
Total ................................. 1,949,025
MASSACHUSETTS - 4.30%
Massachusetts Water Resources Authority,
General Revenue Bonds:
1993 Series C,
5.25%, 12-1-2008 ...................... 750 692,813
1991 Series A,
6.5%, 12-1-2019 ....................... 150 164,625
Massachusetts Municipal Wholesale
Electric Company, Power Supply System
Revenue Bonds, 1992 Series B,
6.75%, 7-1-2017 ....................... 200 215,250
Total ................................. 1,072,688
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MICHIGAN - 3.40%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... $1,000 $ 847,500
MINNESOTA - 1.90%
City of Plymouth, Minnesota, Multifamily
Housing Revenue Bonds (Harbor Lane
Apartments Project), Series 1993,
5.95%, 9-1-2018 ....................... 500 473,125
MISSOURI - 1.28%
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 247,188
The Industrial Development Authority of the
County of Jackson, State of Missouri,
Health Care System Revenue Bonds,
Saint Joseph Health Center Issue,
Series 1992,
6.5%, 7-1-2012 ........................ 75 72,188
Total ................................. 319,376
MONTANA - 2.24%
City of Forsyth, Rosebud County, Montana,
Pollution Control Revenue Refunding
Bonds (The Montana Power Company Colstrip
Project), Series 1993A,
6.125%, 5-1-2023 ...................... 500 460,625
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
Total ................................. 559,125
NEBRASKA - 1.94%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ 500 484,375
NEVADA - 0.58%
Humboldt County, Nevada, Pollution Control
Revenue Bonds (Idaho Power Company
Project), Series 1984,
8.3%, 12-1-2014 ....................... 125 145,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW JERSEY - 4.06%
New Jersey Economic Development Authority:
Economic Growth Bonds,
Richard L. Tauber Composite Issue-1993
Series A,
5.4%, 10-1-2013 ....................... $ 700 $ 624,750
Economic Development Refunding Bonds
(Yellow Freight System, Inc.- 1993 Project),
6.125%, 4-1-2008 ...................... 400 388,000
Total ................................. 1,012,750
NEW YORK - 5.87%
The City of New York, General Obligation
Bonds, Fiscal 1994 Series D:
5.75%, 8-15-2012 ...................... 500 455,000
5.75%, 8-15-2007 ...................... 400 375,000
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1993,
5.25%, 4-1-2013 ....................... 500 433,750
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 202,250
Total ................................. 1,466,000
OHIO - 0.21%
Ohio Air Quality Development Authority,
State of Ohio, Collateralized Pollution
Control Revenue Refunding Bonds,
1989 Series B (The Toledo Edison Company
Project),
7.55%, 6-1-2023 ....................... 50 53,188
OKLAHOMA - 2.72%
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 475,625
6.6%, 7-1-2014 ........................ 200 202,000
Total ................................. 677,625
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
SOUTH CAROLINA - 1.20%
Charleston County, South Carolina, Industrial
Refunding Revenue Bonds, 1982 Series
(Massey Coal Terminal, South Carolina
Corporate Project), Adjustable Convertible
Extendible Securities,
2.9%, 1-1-2007 ........................ $ 300 $ 300,000
TEXAS - 7.23%
Brazos River Authority (Texas),
Variable Rate Demand, Pollution Control
Revenue Refunding Bonds (Monsanto Company
Project), Series 1994,
2.2%, 2-1-2004 ........................ 1,000 1,000,000
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2002 ....................... 800 705,000
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1991 (American Airlines, Inc.
Project),
7.0%, 12-1-2011 ....................... 100 99,250
Total ................................. 1,804,250
VIRGINIA - 3.71%
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 ....................... 1,000 926,250
WASHINGTON - 8.73%
Washington Public Power Supply System:
Nuclear Project No. 1, Refunding
Revenue Bonds:
Series 1989A,
6.0%, 7-1-2017 ........................ 450 420,750
Series 1994B,
7.375%, 7-1-2004 ...................... 500 545,000
Nuclear Project No. 2, Refunding
Revenue Bonds, Series 1991A,
6.0%, 7-1-2012 ........................ 190 180,025
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WASHINGTON (Continued)
Washington Health Care Facilities
Authority, Revenue Bonds, Series 1993
(Highline Community Hospital, Seattle),
5.5%, 8-15-2014 ....................... $1,000 $ 881,250
Public Utility District No. 2 of Grant
County, Washington, Wanapum
Hydroelectric Development, Second Series
Revenue Bonds, 1992B,
6.75%, 1-1-2023 ....................... 150 153,000
Total ................................. 2,180,025
TOTAL MUNICIPAL BONDS - 92.57% $23,105,185
(Cost: $24,445,150)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.68%
U.S. Bancorp,
Master Note............................ 170 170,000
Financial - 2.24%
Associates Corporation of North America,
Master Note............................ 560 560,000
Food and Related - 2.61%
Sara Lee Corporation,
Master Note............................ 650 650,000
TOTAL SHORT-TERM SECURITIES - 5.53% $ 1,380,000
(Cost: $1,380,000)
TOTAL INVESTMENT SECURITIES - 98.10% $24,485,185
(Cost: $25,825,150)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.90% 475,300
NET ASSETS - 100.00% $24,960,485
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Automotive - 2.05%
Toyota Motor Credit Corporation,
3.02%, 8-5-96 ......................... $ 250 $ 222,533
Banks and Savings and Loans - 3.58%
Bayerische Landesbank Girozentrale,
3.06%, 3-28-97 ........................ $ 250 225,938
Deutsche Bank Aktiengesellschaft,
12.0%, 10-2-96 (A) .................... L250,000 162,500
Total ................................. 388,438
Public Utilities - Electric - 3.99%
Electricite de France,
8.25%, 12-4-97 (A) .................... F2,250 433,733
TOTAL CORPORATE DEBT SECURITIES - 9.62% $ 1,044,704
(Cost: $1,075,449)
OTHER GOVERNMENT SECURITIES
Australia - 7.53%
New South Wales Treasury,
8.5%, 3-1-96 (A) ...................... $A500 371,325
Queensland Treasury Corporation:
8.0%, 5-14-97 (A) ..................... $A400 288,608
12.0%, 5-15-97 (A) .................... $A200 158,144
Total ................................. 818,077
Canada - 14.10%
Province of Alberta,
8.625%, 11-27-96 ...................... $ 200 205,950
Government of Canada:
7.5%, 7-1-97 (A) ...................... $C1,000 738,670
6.25%, 2-1-98 (A) ..................... $C 350 246,733
10.75%, 3-15-98 (A) ................... $C 425 340,527
Total ................................. 1,531,880
Denmark - 2.67%
Kingdom of Denmark,
9.0%, 11-15-98 (A) .................... DKr1,750 290,238
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES (Continued)
France - 17.07%
Bon Du Tresor:
9.0%, 11-12-95 (A) .................... F1,000 $ 193,880
8.0%, 5-12-98 (A) ..................... F4,500 863,100
0.0%, 10-25-98 (A) .................... F4,000 561,320
Credit Local de France,
4.25%, 2-23-96 ........................ $ 250 236,250
Total ................................. 1,854,550
Germany - 8.02%
Bundesobligation:
7.25%, 12-20-94 (A) ................... DM550 355,960
6.625%, 1-20-98 (A) ................... DM250 159,593
Bundesschatzanweisungen,
8.75%, 12-20-95 (A) ................... DM250 166,265
Kreditanstalt fur Weideraufbau,
10.6%, 5-18-98 (A) .................... L300,000 189,000
Total ................................. 870,818
Netherlands - 1.51%
Netherlands Government,
6.5%, 10-1-94 (A) ..................... Dfl285 163,975
Supranational - 4.60%
European Investment Bank,
6.75%, 5-14-98 (A) .................... F2,000 369,720
Inter-American Development Bank,
7.5%, 12-15-94 (A) .................... DM200 129,472
Total ................................. 499,192
Sweden - 4.22%
Kingdom of Sweden,
10.75%, 1-23-97 (A) ................... SEK3,400 458,830
TOTAL OTHER GOVERNMENT SECURITIES - 59.72% $ 6,487,560
(Cost: $6,574,388)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-31-96 ........................ $1,300 1,315,639
6.875%, 4-30-97 ....................... $ 175 175,301
TOTAL UNITED STATES GOVERNMENT SECURITIES - 13.73% $ 1,490,940
(Cost: $1,531,613)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
SEPTEMBER 30, 1994
Face
Amount in
Thousands Value
UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS
Danish Krone, 3-25-96 (A) .............. DKr1,700 $ (21,306)
French Franc, 3-5-95 (A) ............... F3,000 (58,562)
French Franc, 3-9-95 (A) ............... F2,500 (49,317)
TOTAL UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (1.19%) $ (129,185)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Financial - 4.63%
Associates Corporation of North America,
Master Note............................ $ 503 503,000
Food and Related - 4.08%
Sara Lee Corporation,
Master Note ........................... $ 443 443,000
Total Commercial Paper - 8.71% 946,000
Time Deposits
ABN Amro Bank - Grand Cayman,
4.875%, 12-15-94 (A) .................. DM522 336,881
Canadian Imperial Bank of
Commerce - Grand Cayman,
4.1875%, 10-21-94 (A) ................. SFr512 397,764
Total Time Deposits - 6.76% 734,645
TOTAL SHORT-TERM SECURITIES - 15.47% $ 1,680,645
(Cost: $1,644,540)
TOTAL INVESTMENT SECURITIES - 97.35% $10,574,664
(Cost: $10,825,990)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.65% 287,924
NET ASSETS - 100.00% $10,862,588
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Automotive - 2.37%
Toyota Motor Credit Corporation,
6.695%, 8-5-96 ........................ $ 250 $ 243,125
Banks and Savings and Loans - 3.96%
Bayerische Landesbank Girozentrale,
5.34%, 3-28-97 ........................ $ 250 242,500
Deutsche Bank Aktiengesellschaft,
12.0%, 10-2-96 (A) .................... L250,000 165,000
Total ................................. 407,500
TOTAL CORPORATE DEBT SECURITIES - 6.33% $ 650,625
(Cost: $670,427)
OTHER GOVERNMENT SECURITIES
Australia - 7.85%
New South Wales Treasury,
8.5%, 3-1-96 (A) ...................... $A500 362,415
Queensland Treasury Corporation:
8.0%, 5-14-97 (A) ..................... $A400 286,180
12.0%, 5-15-97 (A) .................... $A200 158,878
Total ................................. 807,473
Canada - 14.83%
Province of Alberta,
8.625%, 11-27-96 ...................... $ 200 212,650
Government of Canada:
7.5%, 7-1-97 (A) ...................... $C1,000 727,880
6.25%, 2-1-98 (A) ..................... $C 350 243,229
10.75%, 3-15-98 (A) ................... $C 425 341,029
Total ................................. 1,524,788
Denmark - 2.84%
Kingdom of Denmark,
9.0%, 11-15-98 (A) .................... DKr1,750 292,355
France - 21.53%
Bon Du Tresor:
8.0%, 4-12-94 (A) ..................... F2,250 393,705
9.0%, 11-12-95 (A) .................... F1,000 183,340
8.0%, 5-12-98 (A) ..................... F4,500 844,875
0.0%, 10-25-98 (A) .................... F4,000 537,920
Credit Local de France,
5.9%, 2-23-96 ......................... $ 250 254,375
Total ................................. 2,214,215
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1994
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES (Continued)
Germany - 8.19%
Bundesobligation:
7.25%, 12-20-94 (A) ................... DM550 $ 332,712
6.625%, 1-20-98 (A) ................... DM250 154,058
Bundesschatzanweisungen,
8.75%, 12-20-95 (A) ................... DM250 157,285
Kreditanstalt fur Weideraufbau,
10.6%, 5-18-98 (A) .................... L300,000 198,000
Total ................................. 842,055
Netherlands - 3.04%
Netherlands Government:
6.0%, 7-1-94 (A) ...................... Dfl300 159,705
6.5%, 10-1-94 (A) ..................... Dfl285 152,432
Total ................................. 312,137
Supranational - 4.66%
European Investment Bank,
6.75%, 5-14-98 (A) .................... F2,000 358,040
Inter-American Development Bank,
7.5%, 12-15-94 (A) .................... DM200 121,016
Total ................................. 479,056
TOTAL OTHER GOVERNMENT SECURITIES - 62.94% $ 6,472,079
(Cost: $6,695,084)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
7.25%, 8-31-96 ........................ $1,300 1,351,181
6.875%, 4-30-97 ....................... $ 300 309,609
5.25%, 7-31-98 ........................ $ 150 145,008
4.75%, 10-31-98 ....................... $ 400 377,624
TOTAL UNITED STATES GOVERNMENT SECURITIES - 21.24% $ 2,183,422
(Cost: $2,219,764)
Face
Amount in
Thousands
UNREALIZED GAIN (LOSS) ON OPEN FORWARD
CURRENCY CONTRACTS
Canadian Dollar, 4-12-94 (A) ........... $C 500 11,423
Canadian Dollar, 11-2-94 (A) ........... $C 350 12,432
Canadian Dollar, 11-29-94 (A) .......... $C 425 15,635
Danish Krone, 3-25-96 (A) .............. DKr1,700 (4,047)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GLOBAL INCOME FUND
MARCH 31, 1994
Face
Amount in
Thousands Value
UNREALIZED GAIN (LOSS) ON OPEN FORWARD
CURRENCY CONTRACTS (Continued)
French Franc, 5-24-94 (A) .............. F1,000 $ 3,699
French Franc, 8-4-94 (A) ............... F2,000 (15,040)
French Franc, 3-5-95 (A) ............... F3,000 (11,405)
French Franc, 3-7-95 (A) ............... F1,000 (3,296)
French Franc, 3-7-95 (A) ............... F2,500 (10,012)
TOTAL UNREALIZED LOSS ON OPEN FORWARD
CURRENCY CONTRACTS - (0.01%) $ (611)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper - 0.68%
Financial
Associates Corporation of North America,
Master Note............................ $ 70 70,000
Time Deposits
Canadian Imperial Bank of
Commerce - Grand Cayman,
4.0%, 4-11-94 (A) ..................... SFr503 356,028
Dresdner Bank AG - Grand Cayman,
5.6875%, 6-15-94 (A) .................. DM515 307,876
Total Time Deposits - 6.46% 663,904
TOTAL SHORT-TERM SECURITIES - 7.14% $ 733,904
(Cost: $757,624)
TOTAL INVESTMENT SECURITIES - 97.64% $10,039,419
(Cost: $10,342,899)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.36% 242,890
NET ASSETS - 100.00% $10,282,309
See Notes to Schedules of Investments on page .
<PAGE>
WADDELL & REED FUNDS, INC.
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Principal amounts are denominated in the indicated foreign currency, where
applicable (L - Italian Lira, F - French Franc, $A - Australian Dollar, $C
- Canadian Dollar, DKr - Danish Krone, DM - German Mark, Dfl - Dutch
Guilder, SEK - Swedish Krona, SFr - Swiss Franc,).
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>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1994
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) ..... $87,168,922 $65,982,336 $12,063,534 $25,145,039 $10,574,664
Cash ........................ 4,998 8,221 7,365 8,139 6,139
Receivables:
Fund shares sold ........... 850,381 526,561 11,862 223,523 32,547
Dividends and interest ..... 117,511 20,908 193,914 464,154 278,241
Investment securities
sold ...................... --- --- --- 714,449 ---
Other ...................... --- --- 5,603 6,506 ---
Unamortized organization
expenses (Note 2) .......... 19,555 19,555 19,555 19,555 19,555
Prepaid insurance premium ... 2,229 1,871 939 1,445 939
----------- ----------- ----------- ----------- -----------
Total assets ............... 88,163,596 66,559,452 12,302,772 26,582,810 10,912,085
----------- ----------- ----------- ----------- -----------
Liabilities
Payable for investment
securities purchased ....... --- 590,330 500,544 704,339 ---
Payable for Fund shares
redeemed ................... 92,146 138,874 16,693 77,328 21,282
Accrued service fee ......... 46,442 32,252 6,163 14,035 3,098
Organization expenses
payable .................... 19,555 19,555 19,555 19,555 19,555
Accrued transfer agency
and dividend disbursing .... 13,141 12,458 2,211 3,184 1,629
Dividends payable ........... --- --- 3,503 9,683 2,249
Accrued accounting
services fee ............... 2,500 2,500 833 1,667 833
Other ....................... 3,225 3,504 --- --- 851
----------- ----------- ----------- ----------- -----------
Total liabilities .......... 177,009 799,473 549,502 829,791 49,497
----------- ----------- ----------- ----------- -----------
Total net assets .......... $87,986,587 $65,759,979 $11,753,270 $25,753,019 $10,862,588
=========== =========== =========== =========== ===========
Net Assets
$0.01 par value capital stock
Capital stock .............. $ 72,568 $ 43,928 $ 12,233 $ 25,788 $ 11,641
Additional paid-in capital 84,519,126 58,993,441 12,237,969 27,416,144 11,256,985
Accumulated undistributed
gain (loss):
Accumulated undistributed
net investment loss ....... (26,334) (110,761) --- --- ---
Accumulated undistributed
net realized gain (loss)
on investments and foreign
currency transactions ..... (682,247) 1,507,809 58 (248,409) (164,175)
Net unrealized appreciation
(depreciation) of investments
and translation of assets and
liabilities in foreign currencies
at end of period .......... 4,103,474 5,325,562 (496,990) (1,440,504 ) (241,863)
----------- ----------- ----------- ----------- -----------
Net assets applicable to
outstanding units
of capital .............. $87,986,587 $65,759,979 $11,753,270 $25,753,019 $10,862,588
=========== =========== =========== =========== ===========
Net asset value, redemption
and offering price
per share ................... $12.12 $14.97 $9.61 $9.99 $9.33
====== ====== ===== ===== =====
Capital shares outstanding 7,256,811 4,392,845 1,223,269 2,578,793 1,164,107
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>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1994
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) ..... $59,858,796 $43,369,208 $11,265,920 $24,485,185 $10,039,419
Cash ....................... 3,922 7,190 484 3,943 2,765
Receivables:
Fund shares sold .......... 1,917,953 1,102,327 255,517 150,996 35,960
Dividends and interest .... 90,382 14,500 189,942 440,277 255,906
Other ..................... --- --- --- --- 2,768
Unamortized organization
expenses (Note 2) ......... 22,814 22,814 22,814 22,814 22,814
Prepaid insurance premium .. 226 226 192 226 192
----------- ----------- ----------- ----------- -----------
Total assets .............. 61,894,093 44,516,265 11,734,869 25,103,441 10,359,824
----------- ----------- ----------- ----------- -----------
Liabilities
Payable for investment
securities purchased ...... --- 773,750 --- --- ---
Payable for Fund shares
redeemed .................. 85,717 158,757 26,884 82,512 44,481
Organization expenses
payable ................... 22,814 22,814 22,814 22,814 22,814
Accrued service fee ........ 31,546 22,003 4,480 13,456 2,847
Accrued transfer agency
and dividend disbursing ... 10,120 9,483 2,129 3,159 1,612
Dividends payable .......... --- --- 4,789 16,768 4,928
Accrued accounting
services fee .............. 2,500 1,667 833 1,667 833
Other ...................... 6,109 3,514 1,805 2,580 ---
----------- ----------- ----------- ----------- -----------
Total liabilities ......... 158,806 991,988 63,734 142,956 77,515
----------- ----------- ----------- ----------- -----------
Total net assets ......... $61,735,287 $43,524,277 $11,671,135 $24,960,485 $10,282,309
=========== =========== =========== =========== ===========
Net Assets
$0.01 par value capital stock
Capital stock ............. $ 51,506 $ 30,920 $ 11,863 $ 24,666 $ 10,978
Additional paid-in capital 59,073,522 40,901,759 11,876,315 26,274,326 10,642,305
Accumulated undistributed
gain (loss):
Accumulated undistributed
net realized gain (loss)
on investment transactions (491,351) 769,052 9,889 1,458 (70,287)
Net unrealized appreciation
(depreciation) of investments
at end of period ......... 3,101,610 1,822,546 (226,932) (1,339,965) (302,869)
Net unrealized depreciation on
forward currency contracts --- --- --- --- (611)
Net unrealized appreciation from
foreign currency translation --- --- --- --- 2,793
----------- ----------- ----------- ----------- -----------
Net assets applicable to
outstanding units
of capital .............. $61,735,287 $43,524,277 $11,671,135 $24,960,485 $10,282,309
=========== =========== =========== =========== ===========
Net asset value, redemption
and offering price
per share .................. $11.99 $14.08 $ 9.84 $10.12 $9.37
====== ====== ====== ====== =====
Capital shares outstanding .. 5,150,639 3,091,974 1,186,316 2,466,559 1,097,815
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>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended September 30, 1994
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 .................. $ 110,098 $ 508,395 $353,190 $776,835 $317,920
Dividends ................. 666,037 5,800 --- --- ---
----------- ----------- ----------- ----------- -----------
Total income ............. 776,135 514,195 353,190 776,835 317,920
----------- ----------- ----------- ----------- -----------
Expenses (Notes 2 and 3):
Distribution fees ......... 285,782 200,625 44,204 95,502 39,125
Investment management fee . 267,912 214,624 32,812 71,052 34,337
Transfer agency and
dividend disbursing ...... 74,005 70,189 14,116 20,169 10,472
Service fee ............... 84,034 56,478 12,784 27,062 5,866
Registration fees ......... 41,671 38,392 6,314 11,568 1,574
Accounting services fee ... 15,000 13,333 5,000 8,333 5,000
Audit fees ................ 4,674 4,122 3,229 3,261 4,525
Custodian fees ............ 3,990 4,883 1,680 1,767 5,760
Amortization of organization
expenses ................. 3,259 3,259 3,259 3,259 3,259
Legal fees ................ 1,587 1,543 257 556 686
Other ..................... 20,555 17,508 5,939 5,957 6,890
----------- ----------- ----------- ----------- -----------
Total expenses ........... 802,469 624,956 129,594 248,486 117,494
----------- ----------- ----------- ----------- -----------
Net investment income
(loss) ................. (26,334) (110,761) 223,596 528,349 200,426
----------- ----------- ----------- ----------- -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities ............. (190,891) 738,757 (9,831) (249,867) (101,876)
Realized net gain (loss)
from foreign currency
transactions ............. (5) --- --- --- 7,988
----------- ----------- ----------- ----------- -----------
(190,896) 738,757 (9,831) (249,867) (93,888)
----------- ----------- ----------- ----------- -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ................ 1,001,864 3,503,016 (270,058) (100,539) 52,154
Unrealized appreciation from
translation of assets and
liabilites in foreign
currencies ................ --- --- --- --- 6,670
----------- ----------- ----------- ----------- -----------
1,001,864 3,503,016 (270,058) (100,539) 58,824
----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments ............. 810,968 4,241,773 (279,889) (350,406) (35,064)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ........ $ 784,634 $4,131,012 $(56,293) $177,943 $165,362
=========== ========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year ended March 31, 1994
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 .................. $ 87,147 $ 317,264 $ 526,188 $ 969,271 $547,683
Dividends ................. 661,516 3,991 --- --- ---
----------- ----------- ----------- ----------- -----------
Total income ............. 748,663 321,255 526,188 969,271 547,683
----------- ----------- ----------- ----------- -----------
Expenses (Notes 2 and 3):
Distribution fees ......... 274,052 174,653 70,849 129,488 70,692
Investment management fee . 255,556 185,715 52,456 95,328 62,024
Transfer agency and
dividend disbursing ...... 80,832 69,730 20,235 26,507 17,286
Service fee ............... 85,722 51,486 20,588 38,870 11,997
Registration fees ......... 23,941 20,387 14,987 18,704 15,235
Accounting services fee ... 20,000 13,333 4,167 10,833 5,833
Custodian fees ............ 20,730 7,631 2,796 3,859 9,805
Amortization of organization
expenses ................. 6,518 6,518 6,518 6,518 6,518
Audit fees ................ 5,785 5,111 4,112 4,448 5,738
Legal fees ................ 3,318 1,962 1,299 1,783 1,564
Other ..................... 14,962 10,755 5,076 6,439 5,090
----------- ----------- ----------- ----------- -----------
Total expenses ........... 791,416 547,281 203,083 342,777 211,782
----------- ----------- ----------- ----------- -----------
Net investment income
(loss) ................. (42,753) (226,026) 323,105 626,494 335,901
----------- ----------- ----------- ----------- -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities ............. (472,421) 1,570,093 33,900 163,024 (54,459)
Realized net loss from foreign
currency translation ...... --- --- --- --- (30,802)
Realized net gain on forward
currency contracts ........ --- --- --- --- 7,231
----------- ----------- ----------- ----------- -----------
(472,421) 1,570,093 33,900 163,024 (78,030)
----------- ----------- ----------- ----------- -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ................ 2,475,374 1,574,011 (311,607) (1,533,977) (248,620)
Unrealized depreciation on
forward currency contracts --- --- --- --- (2,222)
Unrealized appreciation from
foreign currency translation --- --- --- --- 3,070
----------- ----------- ----------- ----------- -----------
2,475,374 1,574,011 (311,607) (1,533,977) (247,772)
----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments ............... 2,002,953 3,144,104 (277,707) (1,370,953) (325,802)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ......... $1,960,200 $2,918,078 $ 45,398 $ (744,459) $ 10,099
=========== =========== ============ =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1994
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) ................... $ (26,334) $ (110,761) $ 223,596 $ 528,349 $ 200,426
Realized net gain (loss)
on investments ........... (190,896) 738,757 (9,831) (249,867) (93,888)
Unrealized appreciation
(depreciation) ........... 1,001,864 3,503,016 (270,058) (100,539) 58,824
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ......... 784,634 4,131,012 (56,293) 177,943 165,362
----------- ----------- ----------- ----------- -----------
Dividends to shareholders from
net investment income* .... --- --- (223,596) (528,349) (200,426)
----------- ----------- ----------- ----------- -----------
Capital share transactions** 25,466,666 18,104,690 362,024 1,142,940 615,343
----------- ----------- ----------- ----------- -----------
Total increase ............. 26,251,300 22,235,702 82,135 792,534 580,279
Net Assets
Beginning of period ......... 61,735,287 43,524,277 11,671,135 24,960,485 10,282,309
----------- ----------- ----------- ----------- -----------
End of period ............... $87,986,587 $65,759,979 $11,753,270 $25,753,019 $10,862,588
=========== =========== =========== =========== ===========
Undistributed net
investment income
(loss) .................... $(26,334) $(110,761) $--- $--- $---
======== ========= ==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares ................. 2,372,731 1,471,618 238,937 313,812 129,057
Shares issued from reinvest-
ment of dividends ......... --- --- 22,222 48,333 21,667
Shares redeemed ............ (266,559) (170,747) (224,206) (249,911) (84,432)
----------- ----------- ----------- ----------- -----------
Increase in outstanding
capital shares ............ 2,106,172 1,300,871 36,953 112,234 66,292
=========== =========== =========== =========== ===========
Value issued from sale
of shares ................. $28,685,696 $20,491,767 $2,321,467 $3,181,023 $1,197,624
Value issued from reinvest-
ment of dividends ......... --- --- 215,409 489,677 201,406
Value redeemed ............. (3,219,030) (2,387,077) (2,174,852) (2,527,760) (783,687)
----------- ----------- ----------- ----------- -----------
Increase in outstanding
capital ................... $25,466,666 $18,104,690 $ 362,024 $1,142,940 $ 615,343
=========== =========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year ended March 31, 1994
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>
<PAGE>
<TABLE>
<CAPTION>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period From September 21, 1992 Through March 31, 1993
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) ................... $ 10,205 $ (15,082) $ 66,093 $ 93,466 $ 117,869
Realized net gain (loss)
on investments ........... (18,930) 127,667 (5,193) 91,891 (92,391)
Unrealized appreciation
(depreciation) ........... 626,236 248,535 84,675 194,012 (52,915)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations ......... 617,511 361,120 145,575 379,369 (27,437)
----------- ----------- ----------- ----------- -----------
Dividends to shareholders from:*
Net investment income ..... (10,156) (3,420) (66,093) (93,466) (117,869)
Realized net gain
from investment
transactions ............. --- (27,316) --- --- ---
----------- ----------- ----------- ----------- -----------
(10,156) (30,736) (66,093) (93,466) (117,869)
----------- ----------- ----------- ----------- -----------
Capital share transactions** 11,832,423 7,625,141 6,159,887 8,250,837 7,306,356
----------- ----------- ----------- ----------- -----------
Total increase ............. 12,439,778 7,955,525 6,239,369 8,536,740 7,161,050
Net Assets
Beginning of period ......... 20,000 20,000 20,000 20,000 20,000
----------- ----------- ----------- ----------- -----------
End of period ............... $12,459,778 $7,975,525 $6,259,369 $8,556,740 $7,181,050
=========== =========== =========== =========== ===========
Undistributed net
investment income ......... $49 $(18,502) $--- $--- $---
=== ======== ==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares ................. 1,131,789 684,223 632,763 807,410 747,250
Shares issued from reinvest-
ment of dividends and/or
capital gains distributions 954 2,658 5,783 7,312 10,403
Shares redeemed ............ (9,556) (6,290) (18,339) (3,896) (17,731)
----------- ----------- ----------- ----------- -----------
Increase in outstanding
capital shares ............ 1,123,187 680,591 620,207 810,826 739,922
========= ======= ======= ======= =======
Value issued from sale
of shares ................. $11,926,378 $7,667,750 $6,284,160 $8,215,099 $7,376,488
Value issued from reinvest-
ment of dividends and/or
capital gains distributions 10,139 30,733 57,386 75,761 99,966
Value redeemed ............. (104,094) (73,342) (181,659) (40,023) (170,098)
----------- ----------- ----------- ----------- -----------
Increase in outstanding
capital ................... $11,832,423 $7,625,141 $6,159,887 $8,250,837 $7,306,356
=========== =========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 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 .. .13 .93 1.07
------ ------ ------
Total from investment
operations ....... .13 .92 1.09
------ ------ ------
Less dividends from net
investment income (0.00) (0.00) (0.02)
------ ------ ------
Net asset value,
end of period .... $12.12 $11.99 $11.07
====== ====== ======
Total return ....... 1.08% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $87,987 $61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.10%** 2.16% 2.21%**
Ratio of net investment
income to average
net assets ....... -0.07%** -0.12% 0.32%**
Portfolio turnover
rate ............. 20.83%** 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.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
For a Share of Capital Stock Outstanding Throughout Each Period:
For the six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 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 .. .89 2.75 1.79
------ ------ ------
Total from investment
operations ....... .89 2.71 1.77
------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.00) (0.31) (0.08)
------ ------ ------
Total distributions (0.00) (0.31) (0.09)
------ ------ ------
Net asset value,
end of period .... $14.97 $14.08 $11.68
====== ====== ======
Total return ....... 6.32% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $65,760 $43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.33%** 2.34% 2.50%**
Ratio of net investment
income to average
net assets ....... -0.41%** -0.97% -0.68%**
Portfolio turnover
rate ............. 81.18%** 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.
**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 six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $9.84 $10.06 $10.00
----- ------ ------
Income from investment
operations:
Net investment
income .......... .18 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.23) (0.20) .06
----- ------ ------
Total from investment
operations ....... (0.05) .15 .24
----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.18) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.02) (0.00)
----- ------ ------
Total distributions (0.18) (0.37) (0.18)
----- ------ ------
Net asset value,
end of period .... $9.61 $ 9.84 $10.06
===== ====== ======
Total return ....... -0.45% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $11,753 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.20%** 2.14% 2.15%**
Ratio of net investment
income to average
net assets ....... 3.79%** 3.41% 3.48%**
Portfolio turnover
rate ............. 19.48%** 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.
**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 six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $10.12 $10.53 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... .21 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... (0.13) (0.28) .53
------ ------ ------
Total from investment
operations ....... .08 .11 .74
------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.21) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.13) (0.00)
------ ------ ------
Total distributions (0.21) (0.52) (0.21)
------ ------ ------
Net asset value,
end of period .... $ 9.99 $10.12 $10.53
====== ====== ======
Total return ....... 0.82% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $25,753 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.95%** 1.98% 1.94%**
Ratio of net investment
income to average
net assets ....... 4.15%** 3.62% 3.99%**
Portfolio turnover
rate ............. 78.23%** 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.
**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 six For the For the
months ended year endedperiod ended
September 30, March 31, March 31,
1994 1994 1993*
-------------- ----------------------
Net asset value,
beginning of
period ........... $9.37 $9.68 $10.00
----- ----- ------
Income from investment
operations:
Net investment
income .......... .18 .34 .20
Net realized and
unrealized loss
on investments .. (0.04) (0.31) (0.32)
----- ----- ------
Total from investment
operations ....... .14 .03 (0.12)
----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.18) (0.26) (0.20)
Tax-basis return of
capital.......... (0.00) (0.08) (0.00)
----- ----- ------
Total distributions. (0.18) (0.34) (0.20)
----- ----- ------
Net asset value,
end of period .... $9.33 $9.37 $ 9.68
===== ===== ======
Total return ....... 1.53% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $10,863 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.25%** 2.24% 2.06%**
Ratio of net investment
income to average
net assets ....... 3.84%** 3.56% 3.88%**
Portfolio turnover
rate ............. 17.85%** 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.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
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. During the period ended
March 31, 1994, the Corporation adopted Statement of Position 93-2
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.
Accordingly, permanent book and tax basis differences relating to
shareholder distributions have been reclassified to additional paid-in
capital. In addition, reclassifications have been made between accumulated
undistributed net investment income and accumulated undistributed net
realized gain on investment transactions to more appropriately conform book
and tax treatment of dividend distributions paid to shareholders. As of
April 1, 1993 and March 31, 1994, these reclassifications were as follows:
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
-------------- ------------- ----------
April 1, 1993
Global Income Fund $ --- $ 12,214 $(12,214)
Growth Fund 18,502 (18,502) ---
March 31, 1994
Total Return Fund 42,704 --- (42,704)
Global Income Fund --- 87,921 (87,921)
Growth Fund 226,026 (226,026) ---
Net investment income, net realized gains and net assets were not affected
by this change.
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 September 30, 1994, the Distributor received $851,462 in
12b-1 payments. During this same period W&R paid sales commissions of
$1,040,462. During the period ended March 31, 1994, the Distributor received
$928,397 in 12b-1 payments. During this same period W&R paid sales commissions
of $2,189,596.
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 September 30,
1994, the Distributor received $171,987 in deferred sales charges. During the
period ended March 31, 1994, the Distributor received $106,233 in deferred sales
charges.
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 September 30, 1994
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 $30,375,479$ 15,296,439$1,318,332$10,687,181$ 887,088
Purchases of U.S. Government
securities --- --- 573,095 --- ---
Purchases of short-term
securities 33,429,822129,352,6942,695,000 7,727,000 1,338,000
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 7,415,31512,340,129 415,702 9,515,498 168,303
Proceeds from maturities
and sales of U.S.
Government securities --- --- 687,031 --- 639,476
Proceeds from maturities
and sales of short-term
securities 29,998,075114,439,0852,349,159 7,930,831 853,227
Investment securities transactions for the period ended March 31, 1994 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 $50,751,859$30,002,615$3,551,127$19,497,805$4,961,893
Purchases of U.S. Government
securities --- --- 4,450,189 --- 1,293,120
Purchases of short-term
securities 44,726,21394,950,896 7,344,69619,088,000 7,229,605
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 5,949,298 9,297,157 597,163 3,044,422 1,152,125
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,693,785 --- 1,441,071
Proceeds from maturities
and sales of short-term
securities 44,558,09884,009,762 7,509,51618,468,088 7,566,412
Realized gain (loss) on U.S.
Government securities --- --- 18,549 --- (24,865)
Realized loss on short-term
securities --- --- --- --- (30,936)
For Federal income tax purposes, cost of investments owned at September 30,
1994 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $83,069,926 $6,504,936 $2,405,940 $4,098,996
Growth Fund 60,656,774 6,869,435 1,543,873 5,325,562
Limited-Term Bond Fund12,560,524 4,176 501,166 (496,990)
Municipal Bond Fund 26,585,543 16,828 1,457,332 (1,440,504)
Global Income Fund 10,825,990 173,412 295,553 (122,141)
For Federal income tax purposes, cost of investments owned at March 31,
1994 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $56,761,664 $4,430,055 $1,332,923 $ 3,097,132
Growth Fund 41,546,662 3,168,843 1,346,297 1,822,546
Limited-Term Bond Fund11,492,852 21,490 248,422 (226,932)
Municipal Bond Fund 25,825,150 91,686 1,431,651 (1,339,965)
Global Income Fund 10,342,899 33,626 336,495 (302,869)
NOTE 5 -- Federal Income Tax Matters
The Corporation's income and expenses attributed to each Fund and the gains
and losses on security transactions of each Fund have been attributed to that
Fund for Federal income tax purposes as well as for accounting purposes. For
Federal income tax purposes, Growth Fund, Limited-Term Bond Fund and Municipal
Bond Fund realized capital gain net income of $1,570,093, $28,708 and $163,023,
respectively, during the period ended March 31, 1994 of which a portion was paid
to shareholders during the period ended March 31, 1994. Remaining net capital
gains will be distributed to each Fund's shareholders. Total Return Fund
realized net capital losses of $486,873 during the period ended March 31, 1994,
of which $267,022 was deferred to the year ending March 31, 1995 (see discussion
below). The remaining $219,851 is available to offset future net realized
capital gains through March 31, 2002. As a result of foreign currency exchange
losses in Global Income Fund, $87,921 of the investment income dividends paid by
that Fund represent a tax-basis return of capital. In addition, the Fund
realized net capital and foreign currency exchange losses of $65,969 during the
period ended March 31, 1994, of which $49,197 was deferred to the year ending
March 31, 1995 (see discussion below). The remaining $16,772 is available to
offset future net realized capital gains through March 31, 2002.
Internal Revenue Code regulations permit each Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its next fiscal year ("post-October losses"). From November 1, 1993, through
March 31, 1994, Total Return Fund and Global Income Fund incurred net capital
losses of $267,022 and $49,197, respectively, which have been deferred to the
fiscal year ending March 31, 1995.
<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 September
30, 1994 and March 31, 1994, the results of its operations for the six months
ended September 30, 1994 and the year ended March 31, 1994 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
September 30, 1994 and March 31, 1994 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
October 31, 1994
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- Waddell & Reed Funds, Inc.
Included in Part B:
-------------------
As of March 31, 1994 and September 30, 1994
Statements of Assets and Liabilities
For the year ended March 31, 1994 and the six months ended September 30,
1994
Statements of Operations
For the period ended March 31, 1994 and the six months ended September 30l
1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1994 and September 30,
1994
Report of Independent Accountants
Included in Part C:
-------------------
Consent of Independent Accountants
Articles of Incorporation as restated-EX-99.B1-WRArtres
Investment Management Agreement with amended fee schedule-EX-99.B5-WRima
Amended Appendix A to Custodian Agreement dated October 20,1994-EX-99.B8-
WRCAA
Amended Appendix B to Custodian Agreement dated January 1, 1995-EX-99.B8-
WRCAA2
Fund Application-EX-99.B9-WRAPP
Fund NAV Application-EX-99.B9-WRNAVAPP
Financial Data Schedules- EX-27.B17-WRFFDS
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 4 to the Registration
Statement on Form N-1A of our report dated October 31, 1994 relating to the
financial statements and the financial highlights of Waddell & Reed Funds, Inc.,
which appears in such Statement of Additional Information. We further consent
to the references to us under the heading "Custodial and Auditing Services" in
such Statement of Additional Information and reference to us under the
heading "Financial Highlights of Waddell & Reed Funds, Inc." in the Prospectus
constituting part of this Post-Effective Amendment.
PRICE WATERHOUSE LLP
Kansas City, Missouri
February 3, 1995
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation as restated attached hereto
(2) By-Laws filed February 25, 1992 as Exhibit (b)(2) to the initial
Registration Statement on Form N-1A*
(a) Amendment to By-Laws filed June 2, 1992 as Exhibit (b)(2)(a) to
Pre-Effective Amendment No. 1 to the initial Registration
Statement on Form N-1A*
(b) Amendment to By-Laws filed August 7, 1992 as Exhibit (b)(2)(b) to
Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of Incorporation of
Registrant, as restated, attached hereto; Article II, Article VII,
Article VIII and Article XI of the Bylaws of the Registrant filed
February 25, 1992 as Exhibit (b)(2) to the initial Registration
Statement on Form N-1A*
(5) Investment Management Agreement with amended fee schedule attached
hereto
(6) Underwriting Agreement filed February 25, 1992 as Exhibit (b)(6) to
the initial Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreements including schedule of remuneration filed February
25, 1992 as Exhibits (b)(8)(a); (b)(8)(b); (b)(8)(c); (b)(8)(d); and
(b)(8)(e) on Form SE to the initial Registration Statement on Form N-
1A*
(a) Amended Appendix A to the Custodian Agreements dated October 20,
1994 attached hereto
(b) Amended Appendix B to the Custodian Agreements dated January 1,
1995 attached hereto
(c) Amendment to Custodian Agreements dated February 17, 1993 filed
June 23, 1993 as Exhibit (b)(8)(c) to Post-Effective Amendment
No. 2 to the Registration Statement on Form N-1A*
(9) (a) Shareholder Servicing Agreement filed February 17, 1993 as
Exhibits (b)(9)(a) to Post Effective Amendment No. 1 to the
Registration Statement on Form N-1A*
(b) Accounting Services Agreement filed February 25, 1992 as Exhibit
(b)(9)(b) to the initial Registration Statement on Form N-1A*
(c) Waddell & Reed Funds, Inc. application attached hereto
(d) Fund NAV Application attached hereto
(10) Opinion and Consent of Counsel filed February 25, 1992 as Exhibit
(b)(10) on Form SE to the initial Registration Statement on Form N-1A*
(11) Not applicable
(12) Not applicabl
- ---------------------------------
*Incorporated herein by reference
(13) Agreement with initial shareholder, Waddell & Reed, Inc. filed June 2,
1992 as Exhibit (b)(13) to Pre-Effective Amendment NO. 1 to the
initial Registration Statement on Form N-1A*
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution Basic
Plan Document filed December 16, 1994 as EX-99.B14-1-03bpd to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed December
16, 1994 as EX-99.B14-2-03spd to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed December
16, 1994 as EX-99.B14-3-403baa to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-4-457aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-8-nsmppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-9-nspspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-10-s401aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-11-s401gis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-12-sepaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan Document
filed December 16, 1994 as EX-99.B14-13-sepbpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-15-smppgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
- ---------------------------------
*Incorporated herein by reference
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description field
December 16, 1994 as EX-99.B14-17-spspgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
(15) Distribution and Service Plan filed February 25, 1992 as Exhibit
(b)(15) to the initial Registration Statement on Form N-1A*
(16) Schedule for computation of average annual total return performance
quotation filed February 12, 1993 as Exhibit (b)(16) to Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A*
Computation of yield performance quotation filed February 12, 1993 as
Exhibit (b)(16) on Form SE to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-1A*
(17) Financial Data Schedules attached hereto
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class September 30, 1995
-------------- ------------------------------
Common 18,690
27. Indemnification
---------------
Reference is made to Article 10.2 of the Registrant's Articles of
Incorporation, as restated, attached hereto, Article IX of the Bylaws filed
February 25, 1992 as Exhibit (b)(2) to the initial Registration Statement
on Form N-1A* and to Article V of the Underwriting Agreement filed February
25, 1992 as Exhibit (b)(6) to the initial Registration Statement on Form N-
1A*, each of which provides indemnification. Also refer to Section 2-418
of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the Investment Manager of
the Registrant under the terms of an Investment Management Agreement
whereby it provides investment management services to the Registrant.
Waddell & Reed Investment Management Company is not engaged in any business
other than the provision of investment management services to those
- ---------------------------------
*Incorporated herein by reference
registered investment companies as described in Part A and Part B of this
Post-Effective Amendment.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to Part A and Part B of this Post-Effective
Amendment.
29. Principal Underwriter and Distributor
-------------------------------------
(a) Waddell & Reed, Inc. is the principal underwriter and distributor of
the Registrant's shares. It is also the principal underwriter to the
following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
TMK/United Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United
Science and Technology Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United Vanguard Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or an
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Not applicable
--------------
(a) Not applicable
(b) The Fund agrees to file a post-effective amendment, using financial
statements which need not be certified, within four to six months from
the effective date of this Post-Effective Amendment.
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(a) of the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Overland Park, and State of Kansas, on the 3rd day of
February, 1995.
WADDELL & REED, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board February 3, 1995
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director February 3, 1995
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer February 3, 1995
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and February 3, 1995
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director February 3, 1995
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director February 3, 1995
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director February 3, 1995
- -------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director February 3, 1995
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director February 3, 1995
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director February 3, 1995
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director February 3, 1995
- ------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director February 3, 1995
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director February 3, 1995
- ------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director February 3, 1995
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
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: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- --------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) --------------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting --------------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial --------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- --------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- --------------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- --------------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- --------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 1, 1994
- -------------------- --------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- --------------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- --------------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- --------------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- --------------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- --------------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
<PAGE>
EX-99.B1-WRartres
ARTICLES OF INCORPORATION
OF
WADDELL & REED FUNDS, INC.
(Restated)
FIRST: The undersigned, SHARON K. PAPPAS, whose post office address is
6300 Lamar Avenue, Overland Park, Kansas 66202-4200, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is WADDELL & REED FUNDS, INC. (the
"Corporation").
THIRD: The purposes for which the Corporation is formed are to act as an
open-end investment management company under the Investment Company Act of
1940, as amended ("1940 Act"), and to exercise and enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations of a similar
character by the General Laws of the State of Maryland now or hereafter in
force, including, but not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall, for the purposes of these Articles of
Incorporation, without limiting the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, bills, notes, mortgages or
other obligations or evidences of indebtedness, and any options,
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets; and any negotiable or non-negotiable instruments and money market
instruments, including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all kinds of repurchase or
reverse repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall, for the purpose of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any persons, firms, associations, partnerships,
corporations, syndicates, combinations, organizations, governments or
subdivisions, agencies or instrumentalities of any government); and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof including the right to vote thereon; to aid
by further investment any issuer, any obligation of or interest in which is
held by the Corporation or in the affairs of which the Corporation has any
direct or indirect interest; to guarantee or become surety on any or all of
the contracts, stocks, bonds, notes, debentures and other obligations of
any corporation, company, trust, association or firm; and to do any and
all acts and things for the preservation, protection, improvement and
enhancement in value of any and all such securities.
(b) To acquire all or any part of the goodwill, rights, property and business
of any person, firm, association or corporation heretofore or hereafter
engaged in any business similar to any business which the Corporation has
the power to conduct, and to hold, utilize, enjoy and in any manner
dispose of the whole or any part of the rights, property and business so
acquired, and to assume in connection therewith any liabilities of any
such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may be
capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the 1940 Act and by
these Articles of Incorporation, as its Board of Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the stockholders of
the Corporation) shares of its capital stock in any manner and to the
extent now or hereafter permitted by the laws of the State of Maryland, by
the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restriction or
limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states, territories,
districts and United States dependencies and in foreign countries, all of
the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter
in force.
(h) In general to carry on any other business in connection with or incidental
to its corporate purposes, to do everything necessary, suitable or proper
for the accomplishment of such purposes or for the attainment of any
object or the furtherance of any power herein before set forth, either
alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with its
business or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force from time
to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference
from, the terms of any other clause of this or any other Article of these
Articles of Incorporation, and shall each be regarded as independent and
construed as a power as well as an object and a purpose, and the enumeration of
specific purposes, objects and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or the general powers of the
Corporation now or hereafter conferred by the laws of Maryland, nor shall the
expression of one thing be deemed to exclude another though it be of like
nature, not expressed; provided however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of said State; nor shall it carry on any
business, or exercise any powers, in any other state, territory, district or
country except to the extent that the same may lawfully be carried on or
exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use, maintain,
develop and dispose of (by sale or otherwise) any property, real or
personal, and any interest therein.
To borrow money
(2) and, in this connection, issue notes or other evidence of
indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities, indices of
commodities or securities, and foreign exchange, including the purchase
and sale of futures contracts and options on futures contracts related
thereto, subject to any applicable provisions of law.
FOURTH: The address of the principal office of the Corporation in the
state of Maryland is 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, whose post office address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is incorporated in the State of
Maryland.
FIFTH: Section 5.1. Capital Stock. The total number of shares of
capital stock of all classes which the Corporation shall have authority to
issue is six billion (6,000,000,000) shares, of the par value of one cent ($.01)
("Shares"), and of the aggregate par value of sixty million dollars
($60,000,000). The Shares may be issued by the Board of Directors in such
separate and distinct
series ("Series") and classes of Series ("Classes") as the Board of Directors
shall from time to time create and establish. The initial Series are as
established below and the authority granted in this Article FIFTH relates to
such Series and to any additional Series hereafter established from time to
time. The Board of Directors shall have full power and authority, in its sole
discretion, to create and establish Series and Classes having such preferences,
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such Shares adopted by the Board of Directors and to redesignate
the classes or series established. In addition, the Board of Directors is
hereby expressly granted authority to increase or decrease the number of
Shares of any Series or Class, but the number of Shares of any Series or
Class shall not be decreased by the Board of Directors below the number of
Shares thereof then outstanding. The Board of Directors is also hereby
expressly granted authority to change the name(s) of any Class(es) or
Serie(s) by resolution or resolutions of the Board of Directors without any
action on the part of the Stockholders.
The number of Shares of each initial Series is such number, not exceeding
the total number of authorized Shares of all initial Series of Shares as are
classified below into the Shares of each such Series plus such Shares as may
further be classified into such Series or less such unissued Shares as may be
classified into another Series by the Board of Directors as provided in this
Article FIFTH and pursuant to the Maryland General Corporation Law.
The initial Series of Shares of the Corporation and the number of Shares
set forth for each such Series shall be designated as follows:
Class Shares
Total Return Fund 500,000,000
Growth Fund 500,000,000
Limited-Term Bond Fund 500,000,000
Municipal Bond Fund 500,000,000
International Growth Fund 500,000,000
Asset Strategy Fund 500,000,000
No articles supplementary to these Articles of Incorporation need be filed
pursuant to Maryland General Corporation Law unless and until the unissued
Shares of any Series or any unclassified Shares are classified or reclassified
into any of the designated Series or into any additional Series so as to change
the classifications set forth above.
The Board of Directors of the Corporation is authorized, from time to
time, to classify or to reclassify, as the case may be, any unissued Shares
of the Corporation in separate Series or Classes. The Shares of said Series
or Class of stock shall have such preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
the Board of Directors. The Corporation may hold as treasury Shares, reissue
for such consideration and on such terms as the Board of Directors may
determine, or cancel, at their discretion from time to time, any Shares
reacquired by the Corporation. No holder of any of the Shares shall be entitled
as of right to subscribe for, purchase, or otherwise acquire any Shares of the
Corporation which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 5.2. Establishment of Series or Class. The establishment of any
Series or Class shall be effective upon the adoption of a resolution by a
majority of the then Directors setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class.
At any time that there are no Shares outstanding of any particular Series or
Class previously established and designated, the Directors may by a majority
vote abolish that Series or Class and the establishment and designation
thereof.
Section 5.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency,
in such form and in such amount as the Board of Directors may from time to time
determine. Dividends or distributions on Shares of any Class or Series,
whether payable in cash or stock, shall be paid out of earnings, surplus or
other assets belonging to such Class or Series. Dividends may be declared daily
or otherwise pursuant to a standing resolution or resolutions adopted only once
or with such frequency as the Board of Directors may determine.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to
avoid liability of the Corporation, or each Series of the Corporation, for
Federal income tax in respect of that year. However, nothing in the
foregoing shall limit the authority of the Board of Directors to make
distributions greater than or less than the amount necessary to qualify as a
regulated investment company and to avoid liability of the Corporation, or
any Series of the Corporation, for such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 5.7.
Section 5.4. Assets and Liabilities of Series. All consideration
received by the Corporation for the issue or sale of Shares of a particular
Series, together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be referred to as "assets belonging to" that
Series. In addition, any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series shall be allocated by the Board of Directors between and
among one or more of the Series in such manner as the Board of Directors, in
its sole discretion, deems fair and equitable. Each such allocation shall be
conclusive and binding upon the Stockholders of all Series for all purposes,
and shall be referred to as assets belonging to that Series. The assets
belonging to a particular Series shall be so recorded upon the books of the
Corporation. The assets belonging to each particular Series shall be charged
with the liabilities of that Series and all expenses, costs, charges and
reserves attributable to that Series. Any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily identifiable as
belonging to any particular Series shall be allocated and charged by the
Board of Directors between or among any one or more of the Series in such a
manner as the Board of Directors in its sole discretion deems fair and
equitable. Each such allocation shall be conclusive and binding upon the
Stockholders of all Series for all purposes.
Section 5.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his or her name on
the books of the Corporation; provided, however, that when required by the 1940
Act or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at a Stockholders' meeting,
except that where any provision of law or of these Articles of Incorporation
permit or require that holders of any Series or Class shall vote as a Series or
Class, then one-third of the aggregate number of Shares of that Series or Class
outstanding and entitled to vote thereat, in person or by proxy, shall
constitute a quorum for the transaction of business by that Series or Class.
Section 5.6. Redemption by Stockholders. Each holder of Shares shall
have the right at such times as may be permitted by the Corporation to
require the Corporation to redeem all or any part of his or her Shares at a
redemption price per Share equal to the net asset value per Share as of such
time as the Board of Directors shall have prescribed by resolution. In the
absence of such resolution, the redemption price per Share shall be the net
asset value next determined (in accordance with Section 5.7) after receipt by
the Corporation of a request for redemption in proper form less such charges as
are determined by the Board of Directors and described in the Corporation's
registration statement under the Securities Act of 1933. The Board of Directors
may specify conditions, prices, and places of redemption, and may specify
binding requirements for the proper form or forms of requests for redemption.
Payment of the redemption price may be wholly or partly in securities or other
assets at the value of such securities or assets used in such determination of
net asset value, or may be in cash. Notwithstanding the foregoing, the Board of
Directors may postpone payment of the redemption price and may suspend the
right of the holders of Shares to require the Corporation to redeem Shares
during any period or at any time when and to the extent permissible under the
1940 Act.
Section 5.7. Net Asset Value per Share. The net asset value of each
Share of the Corporation, or each Series or Class, shall be the quotient
obtained by dividing the value of the net assets of the Corporation, or if
applicable of the Series or Class (being the value of the assets of the
Corporation or of the particular Series or Class less its actual and accrued
liabilities exclusive of Capital Stock and Surplus) by the total number of
outstanding Shares of the Corporation, or of the Series or Class. The Board of
Directors shall have the power and duty to determine from time to time the net
asset value per Share at such times and by such methods as it shall determine
subject to any restrictions or requirements under the 1940 Act and the rules,
regulations and interpretations thereof promulgated or issued by the Securities
and Exchange Commission or insofar as permitted by any order of the Securities
and Exchange Commission applicable to the Corporation. The Board of Directors
may delegate such power and duty to any one or more of the directors and
officers of the Corporation, to the Corporation's manager or investment adviser,
to the custodian or depository of the Corporation's assets, or to another agent
of the Corporation.
Section 5.8. Redemption by the Corporation. The Board of Directors may
cause the Corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than five hundred dollars ($500). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his or her Shares to five hundred dollars ($500). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of Shares so redeemed.
SIXTH: Section 6.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for
any other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event
shall Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or
value than the net asset value of the Shares so issued or sold determined as of
such time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 6.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
SEVENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation or of
all Series or Classes (or of any Series or Class entitled to vote thereon as a
separate Series or Class) to take or authorize any action, in accordance with
the authority granted by Section 2-lO4(b)(5) of the Maryland General Corporation
Law, the Corporation is hereby authorized to take such action upon the
concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a majority of the aggregate number of Shares of a Series or Class
entitled to vote thereon as a separate Series or Class). The right to cumulate
votes in the election of directors is expressly prohibited.
EIGHTH: Section 8.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be vested
in and exercised by the Board of Directors. The number of directors
constituting the Board of Directors shall be such number as may from time to
time be fixed in or in accordance with the By-Laws of the Corporation, provided
that after stock is issued to more than one stockholder, such number shall not
be less than three. Except as provided in the By-Laws, the election of
directors may be conducted in any way approved at the meeting (whether of
stockholders or directors) at which the election is held, provided that such
election shall be by ballot whenever requested by any person entitled to vote.
The names of the persons who shall act as directors until the first meeting or
stockholders, and until their successor(s) have been duly chosen and qualified
are:
William T. Morgan
Waddell & Reed, Inc.
6300 Lamar Ave.
Overland Park, Kansas 66202
Henry L. Bellmon
Route 1
P.O. Box 26
Red Rock, Oklahoma 74651
Dodds I. Buchanan
903 13th Street
Boulder, Colorado 80302
Jay B. Dillingham
926 Livestock Exchange
Kansas City, Missouri 64102
John F. Hayes
Gilliland & Hayes, P.A.
335 North Washington
Suite 260
Hutchinson, Kansas 67504-2977
Glendon E. Johnson
John Alden Life Insurance Co.
P.O. Box 020270
7300 Corporate Center Drive
Miami, Florida 33126-1208
Doyle Patterson
1030 W. 56th Street
Kansas City, Missouri 64113
Keith A. Tucker
2001 Third Avenue
Birmingham, Alabama 35233
Frederick Vogel, III
1805 W. Bradley Road
Milwaukee, Wisconsin 53217
Paul S. Wise
8648 Silver Saddle Drive
Carefree, Arizona 85377
Leslie S. Wright
2302 Brookshire Place
Birmingham, Alabama 35213
Section 8.2. By-Laws. Except as may otherwise be provided in the By-Laws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal By-Laws or to adopt new By-Laws of the Corporation,
without any action on the part of the Stockholders; but the By-Laws made by the
Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
NINTH: Section 9.1. Contracts. The Board of Directors may in its
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares of
the Corporation by such other party or parties as agent of the Corporation. The
Board of Directors may also in its discretion from time to time enter into an
investment advisory or management contract or contracts, and any such other
contracts, whereby the other party(ies) to such contract(s) shall undertake to
furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 9.2. Parties to Contracts. Any contract of the character
described in Section 9.1 and/or for services as administrator, custodian,
transfer agent or disbursing agent or related services may be entered into with
any corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation under or
by reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article
NINTH. The same person (including a firm, corporation, trust, or association)
may be the other party to contracts entered into pursuant to Section 9.1 above,
and any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
9.2.
TENTH: Section 10.1. Liability. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) as currently in effect
or as may hereafter be amended, no director or officer of the Corporation shall
be liable to the Corporation or its Stockholders for money damages.
Section 10.2. Indemnification. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) currently in effect or
as may hereafter be amended, the Corporation shall indemnify and advance
expenses as provided in the By-Laws to its present and past directors, officers,
employees and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent in similar
capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this Article
TENTH by the Stockholders of the Corporation, or adoption or modification of
any other provision of the Articles of Incorporation or By-Laws inconsistent
with this Article TENTH, shall be prospective only, to the extent that such
repeal or modification would, if applied retrospectively, adversely affect any
limitation on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with
respect to any act or omission which occurred prior to such repeal, modification
or adoption.
ELEVENTH: The Corporation reserves the right from time to time to make
any amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at a meeting of the
Stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon.
IN WITNESS WHEREOF, the undersigned incorporator of WADDELL & REED FUNDS,
INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 28th day of January, 1992.
/s/Sharon K. Pappas
-------------------------
Sharon K. Pappas
EX-99.B5-WRima
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this 31st day of August, 1992, by and between WADDELL & REED
FUNDS, INC. (hereinafter called "Fund"), and WADDELL & REED INVESTMENT
MANAGEMENT COMPANY.
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed Investment Management Company agrees to act
as investment adviser to Fund with respect to the investment of its assets and
in general to supervise the investments of Fund, subject at all times to the
direction and control of the Board of Directors of Fund, all as more fully set
forth herein.
II. Duties of Waddell & Reed Investment Management Company with
respect to investment of assets of Fund.
A. Waddell & Reed Investment Management Company shall regularly
provide investment advice to Fund and shall, subject to the succeeding
provisions of this section, continuously supervise the investment and
reinvestment of cash, securities or other property comprising the assets of the
investment portfolios of Fund; and in furtherance thereof, Waddell & Reed
Investment Management Company, shall:
1. obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or one or more of
the portfolios of Fund, and whether concerning the individual companies whose
securities are included in one or more of Fund's portfolios or the industries in
which they engage, or with respect to securities which Waddell & Reed Investment
Management Company considers desirable for inclusion in one or more of Fund's
portfolios;
2. furnish continuously an investment program for each of
the portfolios of Fund;
3. determine what securities shall be purchased or sold by
Fund;
4. take, on behalf of Fund, all actions which appear to
Waddell & Reed Investment Management Company necessary to carry into effect such
investment programs and supervisory functions as aforesaid, including the
placing of purchase and sale orders.
B. Waddell & Reed Investment Management Company shall make
appropriate and regular reports to the Board of Directors of Fund on the actions
it takes pursuant to Section II.A. above. Any investment programs furnished by
Waddell & Reed Investment Management Company under this section, or any
supervisory function taken hereunder by Waddell & Reed Investment Management
Company shall at all times conform to and be in accordance with any requirements
imposed by:
1. the provisions of the Investment Company Act of 1940 and
any rules or regulations in force thereunder;
2. any other applicable provision of law;
3. the provisions of the Articles of Incorporation of Fund
as amended from time to time;
4. the provisions of the Bylaws of Fund as amended from
time to time;
5. the terms of the registration statement of Fund, as
amended from time to time, under the Securities Act of 1933 and the Investment
Company Act of 1940.
C. Any investment programs furnished by Waddell & Reed
Investment Management Company under this section or any supervisory functions
taken hereunder by Waddell & Reed Investment Management Company shall at all
times be subject to any directions of the Board of Directors of Fund, its
Executive Committee, or any committee or officer of Fund acting pursuant to
authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of Fund and the expenses of Waddell & Reed
Investment Management Company in performing its functions under this Agreement
shall be divided into two classes, to wit: (i) those expenses which will be
paid in full by Waddell & Reed Investment Management Company, as set forth in
subparagraph "A" hereof, and (ii) those expenses which will be paid in full by
Fund, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed Investment
Management Company, under Section II above, it shall pay in full, except as to
the brokerage and research services acquired through the allocation of
commissions as provided in Section IV hereinafter, for (a) the salaries and
employment benefits of all employees of Waddell & Reed Investment Management
Company who are engaged in providing these advisory services; (b) adequate
office space and suitable office equipment for such employees; and (c) all
telephone and communications costs relating to such functions. In addition,
Waddell & Reed Investment Management Company shall pay the fees and expenses of
all directors of Fund who are employees of Waddell & Reed Investment Management
Company or an affiliated corporation and the salaries and employment benefits of
all officers of Fund who are affiliated persons of Waddell & Reed Investment
Management Company.
B. Fund shall pay in full for all of its expenses which are
not listed above (other than those assumed by Waddell & Reed Investment
Management Company, or one of its affiliates in its capacity as principal
underwriter of the shares of Fund, as Shareholder Servicing Agent or as
Accounting Services Agent for Fund), including (a) the costs of preparing and
printing prospectuses and reports to shareholders of Fund, including mailing
costs; (b) the costs of printing all proxy statements and all other costs and
expenses of meetings of shareholders of Fund (unless Fund and Waddell & Reed
Investment Management Company shall otherwise agree); (c) interest, taxes,
brokerage commissions and premiums on fidelity and other insurance; (d) audit
fees and expenses of independent accountants and legal fees and expenses of
attorneys, but not of attorneys who are employees of Waddell & Reed Investment
Management Company or an affiliated company; (e) fees and expenses of its
directors; (f) custodian fees and expenses; (g) fees payable by Fund under the
Securities Act of 1933, the Investment Company Act of 1940, and the securities
or "Blue-Sky" laws of any jurisdiction; (h) fees and assessments of the
Investment Company Institute or any successor organization; (i) such
nonrecurring or extraordinary expenses as may arise, including litigation
affecting Fund, and any indemnification by Fund of its officers, directors,
employees and agents with respect thereto; (j) the costs and expenses provided
for in any Shareholder Servicing Agreement or Accounting Services Agreement,
including amendments thereto, contemplated by subsection C of this section III.
In the event that any of the foregoing shall, in the first instance, be paid by
Waddell & Reed Investment Management Company, Fund shall pay the same to Waddell
& Reed Investment Management Company on presentation of a statement with respect
thereto.
C. Waddell & Reed Investment Management Company, or an
affiliate of Waddell & Reed Investment Management Company, may also act as (i)
transfer agent or shareholder servicing agent of Fund and/or as (ii) accounting
services agent of Fund if at the time in question there is a separate agreement,
"Shareholder Servicing Agreement" and/or "Accounting Services Agreement,"
covering such functions between Fund and Waddell & Reed Investment Management
Company, or such affiliate. The corporation, whether Waddell & Reed Investment
Management Company, or its affiliate, which is the party to either such
Agreement with Fund is referred to as the "Agent." Each such Agreement shall
provide in substance that it shall go into effect, or be amended, or a new
agreement covering the same topics between Fund and the Agent may be entered
into, only if the terms of such Agreement, such amendment or such new agreement
have been approved by the Board of Directors of Fund, including the vote of a
majority of the directors who are not "interested persons" as defined in the
Investment Company Act of 1940, of either party to the Agreement, such amendment
or such new agreement (considering Waddell & Reed Investment Management Company,
to be such a party even if at the time in question the Agent is an affiliate 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 referred to
as a "disinterested director" vote. Each such Agreement shall also provide in
substance for its continuance, unless terminated, for a specified period which
shall not exceed two years from the date of its execution and from year to year
thereafter only if such continuance is specifically approved at least annually
by a disinterested director vote, and that 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 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 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
light of the usual and customary charges made by others for services of the same
nature and quality. Any such Agreement may also provide in substance that any
disinterested director vote may be conditioned on the favorable vote of the
holders of a majority (as defined in or under the Investment Company Act of
1940) of the outstanding shares of each class of Fund. Any such Agreement shall
also provide in substance that it may be terminated by the Agent at any time
without penalty upon giving Fund one hundred twenty (120) days' written notice
(which notice may be waived by Fund) and may be terminated by Fund 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 Fund shall
be directed or approved by the vote of a majority of the Board of Directors of
Fund in office at the time or by the vote of the holders of a majority (as
defined in or under the Investment Company Act of 1940) of the outstanding
shares of each class or series of Fund.
IV. Brokerage
(a) Waddell & Reed Investment Management Company may select
brokers to effect the portfolio transactions of Fund on the basis of its
estimate of their ability to obtain, for reasonable and competitive commissions,
the best execution of particular and related portfolio transactions. For this
purpose, "best execution" means prompt and reliable execution at the most
favorable price obtainable. Such brokers may be selected on the basis of all
relevant factors including the execution capabilities required by the
transaction or transactions, the importance of speed, efficiency, or
confidentiality, and the willingness of the broker to provide useful or
desirable investment research and/or special execution services. Waddell & Reed
Investment Management Company, shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed Investment
Management Company shall have discretion, in the interest of Fund, to direct the
execution of its portfolio transactions to brokers who provide brokerage and/or
research services (as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934) for Fund and/or other accounts for which
Waddell & Reed Investment Management Company or one or more of its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Act of 1934); and in connection with such transactions, to pay
commission in excess of the amount another adequately qualified broker would
have charged if Waddell & Reed Investment Management Company, determines, in
good faith, that such commission is reasonable in relation to the value of the
brokerage and/or research services provided by such broker, viewed in terms of
either that particular transaction or the overall responsibilities of Waddell &
Reed Investment Management Company, and its investment advisory affiliates with
respect to the accounts for which they exercise investment discretion. In
reaching such determination, Waddell & Reed Investment Management Company, will
not be required to attempt to place a specified dollar amount on the brokerage
and/or research services provided by such broker; provided that Waddell & Reed
Investment Management Company, shall be prepared to demonstrate that such
determinations were made in good faith, and that all commissions paid by Fund
over a representative period selected by its Board of Directors were reasonable
in relation to the benefits to Fund.
(c) Subject to the foregoing provisions of this Paragraph
"IV," Waddell & Reed Investment Management Company may also consider sales of
Fund's shares and shares of investment companies distributed by Waddell & Reed,
Inc. or one of its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed Investment Management Company
As compensation in full for services rendered and for the
facilities and personnel furnished under sections I, II, and IV of this
Agreement, Fund will pay to Waddell & Reed Investment Management Company for
each day the fees specified in Exhibit A hereto.
The amounts payable to Waddell & Reed Investment Management
Company shall be determined as of the close of business each day; shall, except
as set forth below, be based upon the value of net assets computed in accordance
with the Articles of Incorporation of Fund; and shall be paid in arrears
whenever requested by Waddell & Reed Investment Management Company. In
computing the value of the net assets of Fund, there shall be excluded the
amount owed to Fund with respect to shares which have been sold but not yet paid
to Fund by Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or
policies of any state in which shares of Fund are qualified for sale limit the
operation and management expenses of Fund, Waddell & Reed Investment Management
Company will refund to Fund the amount by which such expenses exceed the lowest
of such state limitations.
VI. Undertakings of Waddell & Reed Investment Management
Company; Liabilities
Waddell & Reed Investment Management Company shall give to
Fund the benefit of its best judgment, efforts and facilities in rendering
advisory services hereunder.
Waddell & Reed Investment Management Company shall at all
times be guided by and be subject to Fund's investment policies, the provisions
of its Articles of Incorporation and Bylaws as each shall from time to time be
amended, and to the decision and determination of Fund's Board of Directors.
This Agreement shall be performed in accordance with the
requirements of the Investment Company Act of 1940, the Investment Advisers Act
of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to
the extent that the subject matter of this Agreement is within the purview of
such Acts. Insofar as applicable to Waddell & Reed Investment Management
Company, as an investment adviser and affiliated person of Fund, Waddell & Reed
Investment Management Company shall comply with the provisions of the Investment
Company Act of 1940, the Investment Advisers Act of 1940 and the respective
rules and regulations of the Securities and Exchange Commission thereunder.
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of Waddell & Reed Investment Management Company, it shall not be subject to
liability to Fund or to any stockholder of Fund for any act or omission in the
course of or connected with rendering services thereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of
business on the date hereof and shall continue in effect, unless terminated as
hereinafter provided, for a period of one year and from year-to-year thereafter
only if such continuance is specifically approved at least annually by the Board
of Directors, including the vote of a majority of the directors who are not
parties to this Agreement or "interested persons" (as defined in the Investment
Company Act of 1940) of any such party, cast in person at a meeting called for
the purpose of voting on such approval, or by the vote of the holders of a
majority (as so defined) of the outstanding voting securities of each class or
series of Fund and by the vote of a majority of the directors who are not
parties to this Agreement or "interested persons" (as so defined) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed
Investment Management Company at any time without penalty upon giving Fund one
hundred twenty (120) days' written notice (which notice may be waived by Fund)
and may be terminated by Fund at any time without penalty upon giving Waddell &
Reed Investment Management Company sixty (60) days' written notice (which notice
may be waived by Waddell & Reed Investment Management Company), provided that
such termination by Fund shall be directed or approved by the vote of a majority
of the Board of Directors of Fund in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of Fund. 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.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) WADDELL & REED FUNDS, INC.
By:
/s/Rodney O. McWhinney
---------------------------------
Rodney O. McWhinney, Vice President
ATTEST:
/s/Sharon K. Pappas
- ---------------------------
Sharon K. Pappas
Secretary
(Seal) WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
By:
/s/Robert L. Hechler
--------------------------
Robert L. Hechler
Executive Vice President
ATTEST:
/s/Rodney O. McWhinney
- ----------------------
Rodney O. McWhinney
Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
WADDELL & REED FUNDS, INC.
FEE SCHEDULE
A cash fee computed each day on net asset value for the series of Fund and at
the annual rates listed below:
Total Return Fund .71%
Growth Fund .81%
Limited-Term Bond Fund .56%
Municipal Bond Fund .56%
International Growth Fund .81%
Asset Strategy Fund .81.
EX-99.B8-WRCAA
10/20/94
APPENDIX A
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 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, BOVESPA, CLC
Brazil
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 KASSENVEREIN
Bank
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing Company
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities
Depository Corporation
(KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank, n.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
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
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
EX-99.B8-WRCAA2
1/5/95
APPENDIX "B"
to
CUSTODIAN AGREEMENT
between
UNITED FUNDS and UMB BANK, N.A.
Dated as if January 1, 1995
The Fund shall be responsible for providing to 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/option 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
Philippines .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.) will pass through.
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 $60.0
EX-99.B9-WRapp
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)
________________________________________________________________________________
ACKNOWLEDGEMENT
* 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 Individiual 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 Signatur
[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-WRnavapp
[ Division Office Stamp]
Waddell & Reed, Inc. Mutual Funds
P.O. Box 29217 Net Asset Value (NAV)
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
[] A NAV account to be established.
[] A new Fund to be added to an existing NAV account.
[] An existing non-NAV account to be converted to a NAV account.
Check applicable block:
[] Home Office Personnel
[] Field Personnel
[] 401(k) Plan with 100 or more eligible employees
________________________________________________________________________________
REGISTRATION TYPE (one only) * SEE REVERSE SIDE FOR ELIGIBLE PURCHASERS*
________________________________________________________________________________
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
[] Individual IRA [] 401(k) Unallocated account
[] Spousal IRA [] 401(k) Participant
[] Rollover (Qual. plan lump sum distr.) [] Keogh Participant* (Profit Sharing
[] Simplified Pension Plan (SEP/SPP)* Plan)
*(If new plan attach Adoption [] Keogh Participant* (Money Purchase
Agreement from MRP1166) Plan
*(If new plan attach Adoption
Agreement from MRP1182)
[] TSA or [] 457 Plan Employer's Name _____________________________________
(Do Not Abbreviate)
(If billing is required, -----------------------------------------------------
attach form #CSF1417) Street City State Zip
[] If Tri-Vest, enter Partnership name _____________________________ amt $______
________________________________________________________________________________
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; if
Keogh or 401(k), name of Plan/Trustee/Custodian.
______________________
Month Day Year
________________________________________________________________________________
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse; if Keogh or 401(k) Participant, enter name.
______________________ ______________
Month Day Year Relationship
________________________________________________________________________________
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:
[][]-[][][][][][][]
________________________________________________________________________________
BENEFICIARY: For Retirement Plan Accounts Only. (not for use with 401(k) Plans)
Full Name of Beneficiary Tax Identification Number Relationship Percent
________________________ _________________________ ____________ ______%
________________________________________________________________________________
INVESTMENTS: Make check payable to Waddell & Reed
FUND CODES
101 - W&R Total Retur
102 - W&R Growth
103 - W&R Limited-Term Bond
104 - W&R Municipal Bond
(not available for retirement plans)
105 - W&R International Growth
106 - W&R Asset Strategy
621 - Income
622 - Science & Technology
623 - Accumulative
624 - Bond
625 - International Growth
626 - Gold and Government
627 - Continental Income
628 - High Income
629 - Vanguard
630 - New Concepts
634 - High Income II
680 - Retirement Shares
684 - Asset Strategy
750 - Cash Management
753 - Government Securities
760 - Municipal Bond (not available for Retirement Plans)
762 - Municipal High Income (not available for Retirement Plans)
____ - Other
________________________________________________________________________________
OPEN ACCOUNT
-----If Retirement Plan-----
FUND Amount Yr. Deductible or
(enter code) Enclosed of Contr. Non-Deductible
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
[][][] $______________ 19________ __________
Total $______________
Monthly Div./C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
Existing Accounts
To Be Converted
To NAV
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
[][][][][][][][]
________________________________________________________________________________
*Attach AIS Authorization Form #CUP0714 **Attach Payroll Deduction Authorization
(PFM743) **RR=Reinvest Div/Cap Gain CC=Cash Div/Cap Gain CR=Cash Div/Reinvest
Cap Gain
NAV application must be approved and signed by Division Manager or Regional Vic
President for field personnel and 401(k) plans or Supervisor for Home Office
personnel. Refer to the reverse side for more details.
CHECK SERVICE (Not available for retirement plans)
Send information to establish redemption checking account for: [] United
Government Securities [] United Cash Management
_______________________________________________________________________________
EXPEDITED REDEMPTION: For United Cash Management Only. (Not available for
retirement plans)
Complete items below:
_________________________________________________________
Name and Address of Bank/Broker/Savings & Loan
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Account Number
If account is with a Broker or Savings and Loan, provide:
_________________________________________________________
Name of Its Commercial Bank
_________________________________________________________
Street
_________________________________________________________
City State Zip
_________________________________________________________
Its Account # with Its Commercial Bank
One United Cash Management Accounts where expedited redemption is requested,
Waddell & Reed, Inc. is authorized to honor telephonic, telegraphic or written
requests from anyone for redemption of all or any fund shares so long as the
proceeds are transmitted to the identified account.
_______________________________________________________________________________
ELIGIBLE PURCHASERS
A. EMPLOYEE - Any employee (including retired employees) of Waddell & Reed or
its affiliated companies. A retired employee is an individual separated
from service from Waddell & Reed or affiliated companies with a vested
interest in any Employee Benefit Plan sponsored by Waddell & Reed or its
affiliated companies.
B. SALES REPRESENTATIVE - Any sales representative who is licensed to sell the
products and/or services of Waddell & Reed or a retired Sales Representative.
A retired sales representative is defined as any sales representative who was
at the time of separation from service from Waddell & Reed a Senior Account
Representative.
C. QUALIFYING FAMILY MEMBERS - Spouses, children, parents (no age limit) of
employees and their spouses and sales representatives as defined above.
D. RETIREMENT PLANS - Any Retirement Plan sponsored by Waddell & Reed, Inc.
established for the benefit of an employee, sales representative or
qualifying family member, as defined above.
E. TRUSTS - Trusts, under which the grantor and the trustee or a co-trustee are
each an employee, sales representative or qualifying family member.
F. CUSTODIANS - A custodian pursuant to a Uniform Gifts (or Transfers) to Minors
Act purchasing for the child of an employee or sales representative. (The
Custodian need not be an Eligible Purchaser.)
G. 401(k) PLANS - Any Cash or Deferred Arrangement established pursuant to
Internal Revenue Code Section 401(k) which has 100 or more eligible
employees.
TERMS AND CONDITIONS
A. NO TRANSFER OF OWNERSHIP - Shares purchased hereunder at net asset value
shall not be transferable on the books of the Fund to other than an Eligible
Purchaser except upon death of the registered shareholder(s). However,
assignments to lending institutions to secure loans are permitted except
where otherwise prohibited.
B. JOINT TENANCY - All registered shareholders in a joint tenancy account must
be Eligible Purchasers
C. CHANGES IN REGISTRATION - A change in registration of shares purchases at net
asset value will be permitted provided the new registration maintains owner-
ship by an Eligible Purchaser.
D. ISSUANCE OF SHARE CERTIFICATES - A share certificate will not be issued,
unless required in connection with a loan.
E. REDEMPTION OF SHARES - Shares may be redeemed as provided in the prospectus
of the respective Fund.
F. PURCHASES - A minimum initial purchase of $500 is usually required for all
Funds. The minimum repeat purchase is $25, except for United Cash Manage-
ment which has no minimum.
G. GENERAL -
1. Purchases of Investment Programs are not included in net asset value
purchases.
2. Shares purchases at net asset value will not be added to existing sales
load accounts. New accounts will be established.
3. If shares held in a non-NAV account are converted/transferred into a NAV
account, the same terms and conditions that apply to NAV shares will also
apply to the converted/transferred shares.
________________________________________________________________________________
TERMINATION
A. The right to purchase shares at net asset value may be terminated by Waddell
& Reed, Inc. at anytime without notice.
________________________________________________________________________________
ACKNOWLEDGEMENT
* I (we) have received a copy of the current prospectus(es) of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement Plan
and Custody Agreement and agree to the terms and conditions set forth therein,
and do hereby establish the Individual Retirement Plan.
* In the case of a 401(k) plan, I (we) certify that more than 100 employees are
currently eligible to participate.
* Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am wait-
ing 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 fro backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to back-
up withholding.
An approved application must be submitted for each initial purchase, each new
Fund, and each conversion to NAV. Full payment must accompany the application.
No order will be accepted by wire nor by written request except on the approved
application. MAIL THIS APPLICATION FOR ANY INITIAL PURCHASE, NEW FUND, AND
CONVERSION TO NAV TO THE HOME OFFICE CUSTOMER SERVICE DIVISION. REPEAT
PURCHASES IN AN EXISTING FUND ACCOUNT SHOULD BE MAILED TO THE HOME OFFICE
CUSTOMER SERVICE DIVISION ACCOMPANIED BY THE TEAR-OFF PORTION OF A CONFIRMATION.
I am eligible to purchase shares at net asset value. I have read all the terms
and conditions stated above and understand and agree to all of them. I agree to
notify Waddell & Reed if my account(s) become ineligible of NAV status.
___________________________________ _______________________________________
Signature of Applicant Representative Number, if applicable
___________________________________ _______________________________________
Signature of Division Manager/ RVP or Date
Supervisor of Home Office Personnel
___________________________________ _______________________________________
Name of Waddell & Reed Employee or Applicant's Relationship to Employee
Representative, if applicable or Representative
[Home Office Use Only]
Fiduciary Trust Company of New
Hampshire accepts appointment a
Custodian in accordance with the Custody
Agreement:
By: _________________________________________
Fiduciary Trust Company Authorized Signature
[OSJ: ]
CUF0025(11/93)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1994 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-31-1994
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 41,546,662
<INVESTMENTS-AT-VALUE> 43,369,208
<RECEIVABLES> 1,116,827
<ASSETS-OTHER> 23,040
<OTHER-ITEMS-ASSETS> 7,190
<TOTAL-ASSETS> 44,516,265
<PAYABLE-FOR-SECURITIES> 773,750
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 218,238
<TOTAL-LIABILITIES> 991,988
<SENIOR-EQUITY> 30,920
<PAID-IN-CAPITAL-COMMON> 40,901,759
<SHARES-COMMON-STOCK> 3,091,974
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 069,052
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 769,052
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,822,546
<NET-ASSETS> 43,524,277
<DIVIDEND-INCOME> 3,991
<INTEREST-INCOME> 317,264
<OTHER-INCOME> 0
<EXPENSES-NET> 547,281
<NET-INVESTMENT-INCOME> (226,026)
<REALIZED-GAINS-CURRENT> 1,570,093
<APPREC-INCREASE-CURRENT> 1,574,011
<NET-CHANGE-FROM-OPS> 2,918,078
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 656,864
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,456,137
<NUMBER-OF-SHARES-REDEEMED> 93,395
<SHARES-REINVESTED> 46,641
<NET-CHANGE-IN-ASSETS> 35,548,752
<ACCUMULATED-NII-PRIOR> (18,502)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 185,715
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 547,281
<AVERAGE-NET-ASSETS> 4,253,498
<PER-SHARE-NAV-BEGIN> 11.68
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 2.75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.08
<EXPENSE-RATIO> 2.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 60,656,774
<INVESTMENTS-AT-VALUE> 65,982,336
<RECEIVABLES> 547,469
<ASSETS-OTHER> 8,221
<OTHER-ITEMS-ASSETS> 21,426
<TOTAL-ASSETS> 66,559,452
<PAYABLE-FOR-SECURITIES> 590,330
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 209,143
<TOTAL-LIABILITIES> 799,473
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,993,441
<SHARES-COMMON-STOCK> 4,392,845
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (110,761)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,507,809
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,325,562
<NET-ASSETS> 65,759,979
<DIVIDEND-INCOME> 5,800
<INTEREST-INCOME> 508,395
<OTHER-INCOME> 0
<EXPENSES-NET> 624,956
<NET-INVESTMENT-INCOME> (110,761)
<REALIZED-GAINS-CURRENT> 738,757
<APPREC-INCREASE-CURRENT> 3,503,016
<NET-CHANGE-FROM-OPS> 4,131,012
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,471,618
<NUMBER-OF-SHARES-REDEEMED> 170,747
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 65,759,979
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 214,624
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 624,956
<AVERAGE-NET-ASSETS> 53,476,246
<PER-SHARE-NAV-BEGIN> 14.08
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .89
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.97
<EXPENSE-RATIO> 2.33
<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, 1994 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-31-1994
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 10,342,899
<INVESTMENTS-AT-VALUE> 10,039,419
<RECEIVABLES> 294,634
<ASSETS-OTHER> 23,006
<OTHER-ITEMS-ASSETS> 2,765
<TOTAL-ASSETS> 10,359,824
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 77,515
<TOTAL-LIABILITIES> 77,515
<SENIOR-EQUITY> 10,978
<PAID-IN-CAPITAL-COMMON> 10,642,305
<SHARES-COMMON-STOCK> 1,097,815
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70,287)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (300,687)
<NET-ASSETS> 10,282,309
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 547,683
<OTHER-INCOME> 0
<EXPENSES-NET> 211,782
<NET-INVESTMENT-INCOME> 335,901
<REALIZED-GAINS-CURRENT> (78,030)
<APPREC-INCREASE-CURRENT> (247,772)
<NET-CHANGE-FROM-OPS> 10,099
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 247,980
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 87,921
<NUMBER-OF-SHARES-SOLD> 506,618
<NUMBER-OF-SHARES-REDEEMED> 185,224
<SHARES-REINVESTED> 34,499
<NET-CHANGE-IN-ASSETS> 3,101,259
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62,024
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 211,782
<AVERAGE-NET-ASSETS> 10,408,049
<PER-SHARE-NAV-BEGIN> 9.68
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> (0.31)
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .08
<PER-SHARE-NAV-END> 9.37
<EXPENSE-RATIO> 2.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 10,825,990
<INVESTMENTS-AT-VALUE> 10,574,664
<RECEIVABLES> 310,788
<ASSETS-OTHER> 6,139
<OTHER-ITEMS-ASSETS> 20,494
<TOTAL-ASSETS> 10,912,085
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49,497
<TOTAL-LIABILITIES> 49,497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,256,985
<SHARES-COMMON-STOCK> 1,164,107
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (164,175)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (241,863)
<NET-ASSETS> 10,862,588
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 317,920
<OTHER-INCOME> 0
<EXPENSES-NET> 117,494
<NET-INVESTMENT-INCOME> 200,426
<REALIZED-GAINS-CURRENT> (93,888)
<APPREC-INCREASE-CURRENT> 58,824
<NET-CHANGE-FROM-OPS> 165,362
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 200,426
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 129,057
<NUMBER-OF-SHARES-REDEEMED> 84,432
<SHARES-REINVESTED> 21,667
<NET-CHANGE-IN-ASSETS> 580,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117,494
<AVERAGE-NET-ASSETS> 10,408,049
<PER-SHARE-NAV-BEGIN> 9.37
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.04)
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.33
<EXPENSE-RATIO> 2.25
<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, 1994 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-31-1994
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 11,492,852
<INVESTMENTS-AT-VALUE> 11,265,920
<RECEIVABLES> 445,459
<ASSETS-OTHER> 23,006
<OTHER-ITEMS-ASSETS> 484
<TOTAL-ASSETS> 11,734,869
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 03,734
<OTHER-ITEMS-LIABILITIES> 63,734
<TOTAL-LIABILITIES> 63,734
<SENIOR-EQUITY> 11,863
<PAID-IN-CAPITAL-COMMON> 11,876,315
<SHARES-COMMON-STOCK> 1,186,316
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,889
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (226,932)
<NET-ASSETS> 11,671,135
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 526,188
<OTHER-INCOME> 0
<EXPENSES-NET> 208,083
<NET-INVESTMENT-INCOME> 323,105
<REALIZED-GAINS-CURRENT> 33,900
<APPREC-INCREASE-CURRENT> (311,607)
<NET-CHANGE-FROM-OPS> 45,398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 323,105
<DISTRIBUTIONS-OF-GAINS> 18,818
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 708,062
<NUMBER-OF-SHARES-REDEEMED> 176,690
<SHARES-REINVESTED> 32,737
<NET-CHANGE-IN-ASSETS> 5,411,766
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,456
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203,083
<AVERAGE-NET-ASSETS> 11,756,023
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .35
<PER-SHARE-GAIN-APPREC> (0.20)
<PER-SHARE-DIVIDEND> .35
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> 2.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 12,560,524
<INVESTMENTS-AT-VALUE> 12,063,534
<RECEIVABLES> 211,379
<ASSETS-OTHER> 7,365
<OTHER-ITEMS-ASSETS> 20,494
<TOTAL-ASSETS> 12,302,772
<PAYABLE-FOR-SECURITIES> 500,544
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,958
<TOTAL-LIABILITIES> 549,502
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,237,969
<SHARES-COMMON-STOCK> 1,223,269
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 58
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (496,990)
<NET-ASSETS> 11,753,270
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 353,190
<OTHER-INCOME> 0
<EXPENSES-NET> 129,594
<NET-INVESTMENT-INCOME> 223,596
<REALIZED-GAINS-CURRENT> (9,831)
<APPREC-INCREASE-CURRENT> (270,058)
<NET-CHANGE-FROM-OPS> (56,293)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 223,596
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 238,937
<NUMBER-OF-SHARES-REDEEMED> 224,206
<SHARES-REINVESTED> 22,222
<NET-CHANGE-IN-ASSETS> 82,135
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,812
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 129,594
<AVERAGE-NET-ASSETS> 11,756,023
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.23)
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.61
<EXPENSE-RATIO> 2.20
<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, 1994 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-31-1994
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 25,825,150
<INVESTMENTS-AT-VALUE> 24,485,185
<RECEIVABLES> 591,273
<ASSETS-OTHER> 23,006
<OTHER-ITEMS-ASSETS> 3,943
<TOTAL-ASSETS> 25,103,441
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 142,956
<TOTAL-LIABILITIES> 142,956
<SENIOR-EQUITY> 24,666
<PAID-IN-CAPITAL-COMMON> 26,274,326
<SHARES-COMMON-STOCK> 2,466,559
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,458
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,339,965)
<NET-ASSETS> 24,960,485
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 969,271
<OTHER-INCOME> 0
<EXPENSES-NET> 342,777
<NET-INVESTMENT-INCOME> 626,494
<REALIZED-GAINS-CURRENT> 163,024
<APPREC-INCREASE-CURRENT> (1,533,977)
<NET-CHANGE-FROM-OPS> (744,459)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 626,494
<DISTRIBUTIONS-OF-GAINS> 253,457
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,770,824
<NUMBER-OF-SHARES-REDEEMED> 191,170
<SHARES-REINVESTED> 74,079
<NET-CHANGE-IN-ASSETS> 16,403,745
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,328
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 342,777
<AVERAGE-NET-ASSETS> 25,401,698
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> (.28)
<PER-SHARE-DIVIDEND> .39
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 26,585,543
<INVESTMENTS-AT-VALUE> 25,145,039
<RECEIVABLES> 1,408,632
<ASSETS-OTHER> 8,139
<OTHER-ITEMS-ASSETS> 21,000
<TOTAL-ASSETS> 26,582,810
<PAYABLE-FOR-SECURITIES> 704,339
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125,452
<TOTAL-LIABILITIES> 829,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,416,144
<SHARES-COMMON-STOCK> 2,578,793
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (248,409)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,440,504)
<NET-ASSETS> 25,753,019
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 776,835
<OTHER-INCOME> 0
<EXPENSES-NET> 248,486
<NET-INVESTMENT-INCOME> 528,349
<REALIZED-GAINS-CURRENT> (249,867)
<APPREC-INCREASE-CURRENT> (100,539)
<NET-CHANGE-FROM-OPS> 177,943
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 528,349
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 313,812
<NUMBER-OF-SHARES-REDEEMED> 249,911
<SHARES-REINVESTED> 48,333
<NET-CHANGE-IN-ASSETS> 792,534
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,052
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 248,486
<AVERAGE-NET-ASSETS> 25,401,698
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> (.13)
<PER-SHARE-DIVIDEND> .21
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<EXPENSE-RATIO> 1.95
<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, 1994 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-31-1994
<PERIOD-END> MAR-31-1994
<INVESTMENTS-AT-COST> 56,757,186
<INVESTMENTS-AT-VALUE> 59,858,796
<RECEIVABLES> 2,008,335
<ASSETS-OTHER> 23,006
<OTHER-ITEMS-ASSETS> 3,922
<TOTAL-ASSETS> 61,894,093
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158,806
<TOTAL-LIABILITIES> 158,806
<SENIOR-EQUITY> 51,506
<PAID-IN-CAPITAL-COMMON> 59,073,522
<SHARES-COMMON-STOCK> 5,150,639
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (491,351)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,101,610
<NET-ASSETS> 61,735,287
<DIVIDEND-INCOME> 661,516
<INTEREST-INCOME> 87,147
<OTHER-INCOME> 0
<EXPENSES-NET> 791,416
<NET-INVESTMENT-INCOME> (42,753)
<REALIZED-GAINS-CURRENT> (472,421)
<APPREC-INCREASE-CURRENT> 2,475,374
<NET-CHANGE-FROM-OPS> 1,960,200
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,355,295
<NUMBER-OF-SHARES-REDEEMED> 329,843
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,275,509
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 255,556
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 791,416
<AVERAGE-NET-ASSETS> 76,144,646
<PER-SHARE-NAV-BEGIN> 11.07
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> .93
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.99
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEMIANNUAL REPORT
TO SHAREHOLDERS DATED SEPTEMBER 30, 1994 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> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> SEP-30-1994
<INVESTMENTS-AT-COST> 83,065,448
<INVESTMENTS-AT-VALUE> 87,168,922
<RECEIVABLES> 967,892
<ASSETS-OTHER> 4,998
<OTHER-ITEMS-ASSETS> 21,784
<TOTAL-ASSETS> 88,163,596
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 177,009
<TOTAL-LIABILITIES> 177,009
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,519,126
<SHARES-COMMON-STOCK> 7,256,811
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (26,334)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (682,247)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,103,474
<NET-ASSETS> 87,986,587
<DIVIDEND-INCOME> 666,037
<INTEREST-INCOME> 110,098
<OTHER-INCOME> 0
<EXPENSES-NET> 802,469
<NET-INVESTMENT-INCOME> (26,334)
<REALIZED-GAINS-CURRENT> (190,896)
<APPREC-INCREASE-CURRENT> 1,001,864
<NET-CHANGE-FROM-OPS> 784,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,372,731
<NUMBER-OF-SHARES-REDEEMED> 266,559
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 26,251,300
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 267,912
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 802,469
<AVERAGE-NET-ASSETS> 76,144,646
<PER-SHARE-NAV-BEGIN> 11.99
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .13
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
