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. 7
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 7
WADDELL & REED FUNDS, INC.
- ---------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
- ---------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
- ---------------------------------------------------------------------------
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
- ---------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on June 30, 1996 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ending March 31, 1996 was filed on or about May 24,
1996.
<PAGE>
WADDELL & REED FUNDS, INC.
==========================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d) ..................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
(b) ..................... About the Investment Principles of the Funds
(c) ..................... An Overview of the Funds; About the Investment
Principles of the Funds
5(a) ..................... About the Management and Expenses of the Funds
(b) ..................... About the Management and Expenses of the Funds
(c) ..................... About the Management and Expenses of the Funds
(d) ..................... About the Management and Expenses of the Funds
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(f) ..................... Expenses; About the Management and Expenses of the
Funds
(g) ..................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Funds
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Funds
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Funds
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Funds
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Funds
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Corporation
or Waddell & Reed, Inc., its principal underwriter and distributor, at the
address or telephone number below. The SAI is incorporated by reference into
this Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Waddell & Reed Funds, Inc.
Class B Shares
Waddell & Reed Funds, Inc. (the "Corporation") is a management investment
company that has six separate funds (the "Funds"), each of which is designed for
investors with different goals. Total Return Fund seeks to provide current
income while seeking capital growth. Growth Fund seeks capital appreciation.
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital. Municipal Bond Fund seeks to provide
income which is not subject to Federal income taxation. International Growth
Fund seeks long-term appreciation as its primary goal and realization of income
as its secondary goal. Asset Strategy Fund seeks high total return with reduced
risk over the long term.
This Prospectus describes one class of shares of each of the Funds--Class B
shares.
Prospectus
June 30, 1996
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 6
FINANCIAL HIGHLIGHTS 12
PERFORMANCE 18
Explanation of Terms 18
ABOUT WADDELL & REED 20
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS 21
Investment Goals and Principles 21
Risk Considerations 27
Securities and Investment Practices 27
ABOUT YOUR ACCOUNT 46
Ways to Set Up Your Account 46
Buying Shares 47
Minimum Investments 48
Adding to Your Account 49
Selling Shares 49
Shareholder Services 53
Personal Service 53
Reports 54
Exchanges 54
Automatic Transactions 54
Dividends, Distributions and Taxes 55
Distributions 55
Taxes 55
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS 58
WRIMCO and Its Affiliates 59
Breakdown of Expenses 61
Management Fee 61
Other Expenses 62
Distribution 63
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes six separate series (each a "Fund" and
collectively the "Funds") of an open-end, management investment company. Each
Fund has different investment goals and policies. Each of the Funds is a
diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital growth.
This Fund invests primarily in common stocks, or securities convertible into
common stocks, of companies that have a record of paying regular dividends on
common stock and also have the potential for capital appreciation. Although
common stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of its assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return with reduced risk over the long
term. This Fund seeks to reduce risk over the long term by spreading its assets
among stocks, bonds and short-term instruments, both in the United States and
abroad, attempting to moderate the risk potential of investing solely in one
class of instruments. The Fund designates a mix which represents the way the
Fund's investments will generally be allocated over the long term. This mix
will vary over short-term periods as the Fund's investment manager adjusts the
Fund's holdings -- within defined ranges -- based on the current outlook for the
different markets. Because the Fund owns different types of investments, its
performance will be affected by a variety of factors.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the six
Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class B shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class B share of
a Fund is the net asset value of a Class B share of that Fund. A sales charge
is not incurred upon purchase of shares of a Fund, but the Class B shares are
subject to a contingent deferred sales charge if redeemed within a certain time
period. See "About Your Account" for information on how to purchase Class B
shares of each of the Funds.
Redemptions: You may redeem your Class B shares at net asset value less a
deferred sales charge, if any. The deferred sales charge will vary with the
length of time you have held your shares. When you sell your Class B shares,
they may be worth more or less than what you paid for them. See "About Your
Account" for a description of redemption and reinvestment procedures.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Funds" for information
about the risks associated with each Fund's investments.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge1 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees2 1.00%
Other expenses3 0.32%
Total Fund operating
expenses4 2.03%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return:5
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 51 $ 21
3 years $ 74 $ 64
5 years $109 $109
10 years $236 $236
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."
1The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
2It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
3Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
4Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
5Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge6 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 fees7 0.81%
12b-1 fees8 1.00%
Other expenses9 0.37%
Total Fund operating expenses10 2.18%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return11 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 52 $ 22
3 years $ 78 68
5 years $117 117
10 years $251 251
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."
6The 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.
7The management fee for Growth Fund is higher than that of most funds.
8It 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."
9Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
10Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
11Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Limited-Term Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge12 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 fees13 0.97%
Other expenses14 0.62%
Total Fund operating expenses15 2.15%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return16 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 52 $ 22
3 years $ 77 67
5 years $115 115
10 years $248 248
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 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."
12The 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.
13It 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."
14 Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
15Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
16Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge17 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 fees18 0.98%
Other expenses190.41%
Total Fund operating expenses 1.95%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return20 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 50 $ 20
3 years $ 71 61
5 years $105 105
10 years $227 227
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."
17The 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.
18It 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."
19 Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
20Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund21
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
charge22 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 fees23 0.81%
12b-1 fees24 0.92%
Other expenses250.83%
Total Fund operating expenses26 2.56%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return27 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 56 $ 26
3 years $ 90 80
5 years $136 136
10 years $290 290
21International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
22The 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.
23Expense information has been restated to reflect the current management fees
which became effective April 20, 1995. The management fee for International
Growth Fund is higher than that of most funds.
24It 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."
25Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
26Expense information has been restated to reflect the current management fees
which became effective April 20, 1995. Retirement plan accounts may be subject
to a $2 fee imposed by the plan custodian for use of the Flexible Withdrawal
Service.
27Use of an assumed annual return of 5% is for illustration purposes only and
is 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>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge28 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 fees290.81%
12b-1 fees30 1.00%
Other expenses310.76%
Total Fund operating expenses32 2.57%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return33 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 56 $ 26
3 years 90 80
5 years 137 137
10 years 290 290
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."
28The 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.
29The management fee for Asset Strategy Fund is higher than that of most funds.
30Expense 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."
31Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
32Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
33Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
Total Return Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.73 $11.99 $11.07 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment income
(loss)........... (0.01) 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. 3.67 .74 .93 1.07
------ ------ ------ ------
Total from investment
operations ....... 3.66 .74 .92 1.09
------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00) (0.00) (0.02)
Distribution from
capital gains ... (0.05) (0.00) (0.00) (0.00)
------ ------ ------ ------
Total distributions. (0.05) (0.00) (0.00) (0.02)
------ ------ ------ ------
Net asset value,
end of period .... $16.34 $12.73 $11.99 $11.07
====== ====== ====== ======
Total return ....... 28.75% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $208,233$104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 1.99% 2.05% 2.16% 2.21%***
Ratio of net investment
income to average
net assets ....... -0.11% -0.04% -0.12% 0.32%***
Portfolio turnover
rate ............. 16.78% 16.60% 17.31% 23.97%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Growth Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $16.90 $14.08 $11.68 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.02) 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 4.49 3.15 2.75 1.79
------ ------ ------ ------
Total from investment
operations ....... 4.47 3.15 2.71 1.77
------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.37) (0.33) (0.31) (0.08)
------ ------ ------ ------
Total distributions (0.37) (0.33) (0.31) (0.09)
------ ------ ------ ------
Net asset value,
end of period .... $21.00 $16.90 $14.08 $11.68
====== ====== ====== ======
Total return ....... 26.57% 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $202,557$100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.14% 2.23% 2.34% 2.50%***
Ratio of net investment
income to average
net assets ....... -0.25% 0.01% -0.97% -0.68%***
Portfolio turnover
rate .............. 31.84% 56.30% 69.12% 124.44%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Limited-Term Bond Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $ 9.70 $9.84 $10.06 $10.00
------ ----- ------ ------
Income from investment
operations:
Net investment
income .......... .41 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... .30 (0.13) (0.20) .06
------ ----- ------ ------
Total from investment
operations ....... .71 .26 .15 .24
------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.41) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.01) (0.02) (0.00)
------ ----- ------ ------
Total distributions (0.41) (0.40) (0.37) (0.18)
------ ----- ------ ------
Net asset value,
end of period .... $10.00 $9.70 $ 9.84 $10.06
====== ===== ====== ======
Total return ....... 7.41% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $23,682$12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.10% 2.17% 2.14% 2.15%***
Ratio of net investment
income to average
net assets ........ 4.14% 4.05% 3.41% 3.48%***
Portfolio turnover
rate ............. 22.08% 29.20% 25.90% 39.64%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Municipal Bond Fund
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.30 $10.12 $10.53 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .43 .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... .33 .18 (0.28) .53
------ ------ ------ ------
Total from investment
operations ....... .76 .62 .11 .74
------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.43) (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.00) (0.13) (0.00)
------ ------ ------ ------
Total distributions (0.43) (0.44) (0.52) (0.21)
------ ------ ------ ------
Net asset value,
end of period .... $10.63 $10.30 $10.12 $10.53
====== ====== ====== ======
Total return ....... 7.48% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $33,869$27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.93% 1.94% 1.98% 1.94%***
Ratio of net investment
income to average
net assets ....... 4.05% 4.41% 3.62% 3.99%***
Portfolio turnover
rate ............. 42.02% 56.92% 18.93% 140.02%***
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
International Growth Fund*
(Audited)
The following information has been audited by Price Waterhouse LLP, independent
accountants, and should be read in conjunction with the financial statements and
notes thereto, together with the report of Price Waterhouse LLP, included in the
SAI.
For a Class B share outstanding throughout each period**:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993***
------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.36 $9.37 $9.68 $10.00
------ ----- ----- ------
Income from investment
operations:
Net investment
income .......... .08 .36 .34 .20
Net realized and
unrealized gain (loss)
on investments .. .63 (0.01) (0.31) (0.32)
------ ----- ----- ------
Total from investment
operations ....... .71 .35 .03 (0.12)
------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.11) (0.36) (0.26) (0.20)
In excess of net
investment income (.02) (0.00) (0.00) (0.00)
Tax-basis return of
capital.......... (0.00) (0.00) (0.08) (0.00)
------ ----- ----- ------
Total distributions. (0.13) (0.36) (0.34) (0.20)
------ ----- ----- ------
Net asset value,
end of period .... $9.94 $9.36 $9.37 $ 9.68
====== ===== ===== ======
Total return ....... 7.64% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $20,874$11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.50% 2.29% 2.24% 2.06%****
Ratio of net investment
income to average
net assets ....... 0.63% 3.87% 3.56% 3.88%****
Portfolio turnover
rate ............. 88.55% 13.33% 34.90% 8.35%****
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
***The Corporation's inception date is January 29, 1992; however, since the
Fund did not have any investment activity or incur expenses prior to the
date of initial public offering, the per share information is for a capital
share outstanding for the period from September 21, 1992 (initial public
offering) through March 31, 1993.
****Annualized.
<PAGE>
Asset Strategy 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 Class B share outstanding throughout the period*:
For the
period
from
April 20,
1995
through
March
31, 1996**
---------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
income .......... .16
Net realized and
unrealized gain
on investments... .14
------
Total from investment
operations ........ .30
Less dividends from
net investment
income........... (0.15)
------
Net asset value,
end of period ..... $10.15
======
Total return ....... 3.00%
Net assets, end of
period (000
omitted) ......... $13,221
Ratio of expenses
to average net
assets ............ 2.54%
Ratio of net investment
income to average net
assets ............ 2.14%
Portfolio
turnover rate ..... 75.02%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund
shares outstanding prior to that date were designated Class B shares.
**The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per share information is for a capital share
outstanding for the period from April 20, 1995 (initial public
offering) through March 31, 1996. Ratios have been annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over
a given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
Standardized total return figures reflect payment of the maximum applicable
contingent deferred sales charge. Non-standardized performance information does
not reflect deduction of the sales charge or is for periods other than those
required to be presented or differs otherwise from standardized performance
information.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period. Tax
equivalent yield is calculated by applying the stated income tax rate to only
the net investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Funds may quote their performance rankings and/or other information
as published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Funds may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that a Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of any Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in the Fund's annual and semiannual reports, which are sent to all shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal(s) of each Fund are set forth below. There is no assurance
that a Fund will achieve its goal.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking
capital growth. The Fund seeks to achieve this goal by investing primarily in
common stocks, or securities convertible into common stocks, of companies that
have a record of paying regular dividends on common stock and also have the
potential for capital appreciation.
When conditions are such that stocks with high yields are less attractive
than other common stocks, Total Return Fund may hold lower yielding or non-
dividend-paying common stocks because of their prospects for capital growth. At
other times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Total Return Fund's assets, including, without limitation, the following:
(i) hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Growth Fund
The goal of Growth Fund is capital appreciation. The Fund seeks to achieve
this goal through a diversified holding of securities consisting primarily of
common stocks, or securities convertible into common stocks, of companies that
offer, in the opinion of WRIMCO, above-average growth potential, including
relatively new or unseasoned companies. Growth Fund is not intended for
investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be
subject to rapid and wide fluctuation. In selecting companies, WRIMCO usually
looks for such characteristics as aggressive or creative management, technology
or specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs. During normal market conditions, the Fund will have at
least 65% of its assets invested in growth securities.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve this
goal by investing primarily in debt securities of investment grade, including
U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted average
maturity of its portfolio of not less than two years and not more than five
years. The maturity of collateralized mortgage obligations and other asset-
backed securities will be deemed to be the estimated average life of such
securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may
purchase are mortgage-backed securities of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and the Federal National Mortgage Association ("Fannie Mae"). These
mortgage-backed securities include pass-through securities, participation
certificates and collateralized mortgage obligations. The Fund will invest in
U.S. Government Securities not backed by the full faith and credit of the United
States only when WRIMCO is satisfied the credit risk is acceptable. The debt
securities, other than U.S. Government Securities, in which Limited-Term Bond
Fund invests include, without limitation, corporate bonds, medium-term notes,
asset-backed securities (such as mortgage-backed securities) and other financial
obligations that are commonly considered debt, all of which securities will be
denominated in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Limited-Term Bond Fund's assets, including, without limitation, the
following: (i) shorten the average maturity of the Fund's portfolio; (ii) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (iii) emphasize debt securities of a higher quality
than those the Fund would ordinarily hold; or (iv) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income taxation. The Fund seeks to achieve this goal by investing
primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the
interest on which is not includable in gross income for Federal income tax
purposes. See "Dividends, Distributions and Taxes" for information concerning
the alternative minimum tax. Municipal Bond Fund and WRIMCO rely on the opinion
of bond counsel for the issuer in determining whether obligations are municipal
bonds.
The types of municipal bonds in which Municipal Bond Fund may invest
include "general obligation" bonds, "revenue" bonds and certain "industrial
development" bonds. Municipal obligations in which the Fund may invest also
include municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are (i)
U.S. Government Securities, (ii) bank obligations of domestic banks or savings
and loan associations that are subject to regulation by the U.S. Government
(including, without limitation, certificates of deposit, letters of credit and
acceptances), and (iii) commercial paper rated at least A by a recognized
statistical rating organization.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by Municipal Bond Fund may
change. Such changes, actual or expected, may also affect the value of these
debt securities, and in turn the value of Municipal Bond Fund's shares.
Dividends paid by Municipal Bond Fund that are derived from income from taxable
obligations, options and futures contracts are subject to Federal income tax.
See "Dividends, Distributions and Taxes."
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Municipal Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
International Growth Fund
The primary goal of International Growth Fund is the long-term appreciation
of your investment. Realization of income is a secondary goal. The Fund seeks
to achieve these goals by investing in securities issued by companies or
governments of any nation. The securities WRIMCO selects to attempt to achieve
the Fund's primary goal will be issued by companies that WRIMCO believes have
the potential for long-term growth.
There are three main kinds of securities that International Growth Fund
will own: common stocks, preferred stocks and debt securities. During normal
market conditions, the Fund will have at least 65% of its assets invested in
growth securities. The securities that the Fund purchases because they may
increase in value over the long term will usually be common stocks or securities
that may be converted into common stocks or rights for the purchase of common
stocks. All or a substantial amount of International Growth Fund's assets may
be invested in foreign securities if, in WRIMCO's opinion, doing so might assist
in achieving the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of the
securities in the Fund's portfolio, WRIMCO may take certain steps with respect
to up to all of International Growth Fund's assets, including, without
limitation, the following: (i) invest in either debt securities (including
commercial paper or U.S. Government Securities) or preferred stocks or both; or
(ii) invest completely or substantially in U.S. securities. A defensive posture
may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Asset Strategy Fund
The goal of Asset Strategy Fund is high total return with reduced risk over
the long term. The Fund seeks to achieve this goal by allocating its assets
among stocks, bonds and short-term instruments.
Allocating assets among different types of investments allows Asset
Strategy Fund to take advantage of opportunities wherever they may occur, but
also subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and
makes changes to favor investments that it believes provide the most favorable
outlook for achieving the Fund's goal. Although WRIMCO uses its expertise and
resources in choosing investments and in allocating assets, WRIMCO's decisions
may not always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments. The stock class includes equity securities of all types.
The bond class includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The short-term class includes all types of short-term instruments with
remaining maturities of three years or less. Within each of these classes,
Asset Strategy Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within
specified ranges. Asset Strategy Fund's mix indicates the benchmark for its
combination of investments in each class over time. WRIMCO may change the mix
within the specified ranges from time to time. The range and approximate
percentage of the mix for each asset class are shown below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
- --------- ------
Stock
class 10-60%
40%
Bond
class 20-60%
40%
Short-term
class 0-70%
20%
Asset Strategy Fund's approach spreads the Fund's assets among all three
classes, attempting to moderate the risk potential of stocks, bonds and short-
term instruments. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try
to pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time. Under normal
circumstances, a single reallocation will not involve more than 10% of Asset
Strategy Fund's total assets.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, as a temporary defensive measure at times when WRIMCO
believes that a mix of stocks, bonds and certain short-term instruments does not
offer a good investment opportunity, it may temporarily invest up to all of
Asset Strategy Fund's assets in money market instruments rated A-1 by Standard &
Poor's Ratings Services ("S&P") or Prime 1 by Moody's Investors Service, Inc.
("MIS"), or unrated securities judged by WRIMCO to be of equivalent quality.
S&P and MIS ratings are described in Appendix A to the SAI. A defensive posture
may reduce the Fund's yield.
Asset Strategy Fund diversifies across investment types more than most
mutual funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to
varying degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of each Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of each Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Because each Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
swaps, caps, collars, floors, stripped securities and mortgage-backed
securities. The use of derivative instruments involves special risks. See
"Risks of Derivative Instruments" for further information on the risks of
investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest, and strategies WRIMCO may employ in
pursuit of the Funds' 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 that Fund achieve its
goal. As a shareholder, you will receive annual and semiannual reports
detailing your Fund's holdings.
Certain of the investment policies and restrictions of each Fund are also
stated below. A fundamental policy of a Fund may not be changed without the
approval of the shareholders of that Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goal of each Fund is a fundamental policy. Unless otherwise indicated, the
types of securities and other assets in which a Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which a
Fund (other than Municipal Bond Fund) invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
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.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). In addition, Asset Strategy Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security to
be equivalent to securities having that rating. Debt securities rated at least
BBB by S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. Debt
securities rated D by S&P or C by MIS are in payment default or are regarded as
having extremely poor prospects of ever attaining any real investment standing.
While credit ratings are only one factor WRIMCO relies on in evaluating high-
yield debt securities, certain risks are associated with credit ratings. Credit
ratings evaluate the safety of principal and interest payments, not market value
risk. Credit ratings for individual securities may change from time to time,
and a Fund may retain a portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately-operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Corporation's Board
of Directors. Unrated municipal lease obligations will be considered to be
illiquid. In determining the credit quality of unrated municipal lease
obligations, one of the factors, among others, to be considered will be the
likelihood that the lease will not be canceled. Certain "non-appropriation"
lease obligations may present special risks because the municipality's
obligation to make future lease or installment payments depends on money being
appropriated each year for this purpose.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of
Municipal Bond Fund's net assets will be invested during normal market
conditions in municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal
bonds of investment grade.
Municipal Bond Fund does not intend to invest 25% or more of its assets in
industrial development bonds.
Debt Holdings, by Ratings. During the fiscal year ended March 31, 1996,
the percentage of the assets of Asset Strategy Fund invested in debt securities
in each of the rating categories of S&P and the corporate debt securities not
rated by an established rating service, determined on a dollar-weighted average,
were as follows:
Percentage of
Rated Assets of Asset
by S&P Strategy Fund
- ------ ----------------
AAA 35.6%
AA 5.4
A 13.4
BBB 4.3
BB 2.3
B 2.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated(equivalent to)
AAA 0.0%
AA 0.0
A 0.0
BBB 0.0
BB 0.0
B 0.0
CCC 0.3
CC 0.0
C 0.0
D 0.0
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in Asset Strategy Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to
the SAI. The Funds (other than Municipal Bond Fund) may invest in preferred
stock rated in any rating category by an established rating service and unrated
preferred stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: At least 65% of the total assets of Limited-
Term Bond Fund will be invested during normal market conditions in bonds.
At least 65% of the total assets of Municipal Bond Fund will be invested
during normal market conditions in bonds exclusive of other municipal debt
obligations. Up to 10% of Municipal Bond Fund's assets may be invested in debt
securities other than municipal bonds ("taxable obligations").
Limited-Term Bond Fund does not intend to invest more than 50% of its
assets in securities rated in the lowest tier of investment grade debt
securities (those rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund
and International Growth Fund may not invest in non-investment grade debt
securities if as a result of such investment more than 5% of that Fund's assets
would consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-
quality debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently intend
to invest in money-market instruments rated below A-1 by S&P or Prime 1 by MIS,
or judged by WRIMCO to be of equivalent quality.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: Normally at least 80% of International Growth
Fund's assets will be invested in foreign securities. International Growth Fund
may purchase foreign securities only if they are (i) listed or admitted to
trading on a domestic or foreign securities exchange, with the exception of
warrants, rights or restricted securities, which need not be so listed or
admitted, or (ii) represented by American Depositary Receipts (receipts issued
against securities of foreign issuers deposited or to be deposited with an
American depository) so listed or admitted on a domestic securities exchange or
traded in the U.S. over-the-counter ("OTC") market, or (iii) issued or
guaranteed by any foreign government or any subdivision, agency or
instrumentality thereof.
Under normal market conditions, International Growth Fund will have at
least 65% of its assets invested in at least three different countries outside
the United States. International Growth Fund may not purchase a foreign
security if as a result more than 75% of its assets would be invested in
securities of any one foreign country. International Growth Fund will not
invest more than 25% of its total assets in the securities issued by the
government of any one foreign country.
Under normal market conditions, Asset Strategy Fund intends to limit its
investments in foreign securities to no more than 50% of total assets. Asset
Strategy Fund currently intends to limit its investments in obligations of any
single foreign government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their
respective assets in foreign securities, subject to the limitations stated in
the SAI.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain swaps, caps,
collars, floors, options, futures contracts, forward currency contracts and
indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts, forward currency contracts, swaps, caps, collars and floors and
certain other strategies described herein. The strategies described below may
be used in an attempt to manage a Fund's foreign currency exposure as well as
other risks of a Fund's investments that can affect fluctuation in its net asset
value.
Asset Strategy Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values. These
techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into forward currency contracts or swap
agreements, and purchasing indexed securities.
Subject to the further limitations stated in the SAI, the Funds'
limitations on the above instruments are as follows: Total Return Fund and
Growth Fund may not purchase or sell options, futures contracts or options on
futures contracts if immediately thereafter the aggregate value of such
contracts and options held by the Fund would exceed 10% of its assets.
Similarly, Municipal Bond Fund may not purchase or sell options, futures
contracts or options on futures contracts if immediately thereafter the
aggregate value of such contracts and options held by the Fund would exceed 20%
of its assets. Dividends paid by Municipal Bond Fund that are derived from
income from taxable obligations, options and futures contracts are subject to
Federal income tax. See "Dividends, Distributions and Taxes." Limited-Term
Bond Fund may not purchase or sell options, futures contracts or options on
futures contracts if immediately thereafter the aggregate value of such options
and contracts held by the Fund would exceed 25% of its assets.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the put or call. If a Fund is not able to enter into a closing
transaction on an option it has written, it will be required to maintain the
securities, or cash in the case of an option on an index, subject to the call or
the collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in cash,
a Fund cannot provide in advance for its potential settlement obligations on a
call it has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Policies and Restrictions: Total Return Fund and Growth Fund may write and
purchase listed options on domestic stock indices that are not limited to stocks
of any industry or group of industries ("broadly-based stock indices"). Total
Return Fund and Growth Fund may also write listed covered call options and
purchase listed covered put options on domestic stocks as well as purchase
listed call options and write listed put options on domestic stocks that are not
covered.
Limited-Term Bond Fund and Municipal Bond Fund may write and purchase
listed options on domestic debt securities, which securities include, without
limitation, U.S. Government Securities ("Domestic Debt Securities"). Limited-
Term Bond Fund may also write and purchase OTC options on Domestic Debt
Securities. Municipal Bond Fund may write and purchase listed options on
indices of municipal bonds ("Municipal Bond Indices").
International Growth Fund may only write covered call options on securities
that are listed on a domestic securities exchange on not more than 10% of its
total assets. With respect to International Growth Fund only, a call option is
"covered" when International Growth Fund owns the securities subject to the call
or has the right to acquire them without additional payment. International
Growth Fund may only purchase call options on securities to effect closing
transactions with respect to call options it has written.
There is no limitation on the types of options that Asset Strategy Fund may
purchase and sell. See the SAI for the limitations on Asset Strategy Fund's use
of options.
Futures Contracts and Options on Futures Contracts. When a Fund purchases
a futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When a Fund sells a futures contract, it incurs
an obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When a Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If a Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: Total Return Fund and Growth Fund may buy and
sell futures contracts on broadly-based stock indices ("Stock Index Futures").
Limited-Term Bond Fund and Municipal Bond Fund may buy and sell futures on
Domestic Debt Securities ("Domestic Debt Futures"). Municipal Bond Fund may buy
and sell futures on Municipal Bond Indices ("Municipal Bond Index Futures").
Total Return Fund and Growth Fund may write and purchase options on Stock
Index Futures. Limited-Term Bond Fund and Municipal Bond Fund may write and
purchase options on Domestic Debt Futures.
International Growth Fund has no present intention to purchase or sell
futures contracts or options thereon.
There is no limitation on the types of futures contracts and options
thereon that Asset Strategy Fund may purchase and sell.
Forward Contracts and Currencies. Asset Strategy Fund, International
Growth Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Funds from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, a Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. A Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. Each of these four Funds may also use
forward contracts in one currency or a basket of currencies to attempt to hedge
against fluctuations in the value of securities denominated in a different
currency if WRIMCO anticipates that there will be a correlation between the two
currencies.
Each of Asset Strategy Fund, International Growth Fund, Total Return Fund
and Growth Fund may also use forward currency contracts to shift the Fund's
exposure to foreign currency exchange rate changes from one foreign currency to
another. For example, if a Fund owns securities denominated in a foreign
currency and WRIMCO believes that currency will decline relative to another
currency, it might enter into a forward contract to sell the appropriate amount
of the first foreign currency with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred to
as "cross hedging." Use of a different foreign currency magnifies the Fund's
exposure to foreign currency exchange rate fluctuations. Each of these Funds
may also purchase forward currency contracts to enhance income when WRIMCO
anticipates that the foreign currency will appreciate in value, but securities
denominated in that currency do not present attractive investment opportunities.
International Growth Fund may hold foreign currency only in connection with
forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Total Return Fund, Growth Fund and Asset Strategy Fund may purchase and sell
foreign currency and invest in foreign currency deposits. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
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.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may
purchase and sell indexed securities, which are securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, as long as
WRIMCO determines that it is consistent with the Fund's goal(s) and investment
policies. Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic. The performance of indexed securities depends
to a great extent on the performance of the security, currency, or other
instrument to which they are indexed, and may also be influenced by interest
rate changes in the United States and abroad. At the same time, indexed
securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than the
underlying instruments.
Swaps, Caps and Floors. Limited-Term Bond Fund and Municipal Bond Fund may
enter into interest rate swap transactions and purchase or sell interest rate
caps and floors as described below. These Funds may only enter into these
transactions in connection with hedging strategies. Limited-Term Bond Fund may
enter into swaps, caps and floors with respect to domestic interest rates.
Municipal Bond Fund may enter into such transactions with respect to municipal
interest rates. Each of these Funds expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities a
Fund anticipates purchasing at a later date.
Asset Strategy Fund is not limited in the type of swap, cap, collar or
floor it may enter into as long as WRIMCO determines it is consistent with the
Fund's goal and investment policies. Depending on how they are used, the swap,
cap, collar and floor agreements used by Asset Strategy Fund may increase or
decrease the overall volatility of its investments and its share price and
yield. The most significant factor in the performance of these agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from the Fund.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage-backed securities
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if a Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if a Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Accelerated prepayments on securities purchased by a
Fund at a premium also impose a risk of loss of principal because the premium
may not have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of
Ginnie Mae (but not Freddie Mac or Fannie Mae) is guaranteed by the full faith
and credit of the United States. This is not a guarantee against market decline
of the value of these securities or shares of a Fund. It is possible that the
availability and marketability (i.e., liquidity) of these securities could be
adversely affected by actions of the U.S. Government to tighten the availability
of its credit. Each Fund may invest in mortgage-backed securities as long as
WRIMCO determines that it is consistent with the Fund's goal(s) and investment
policies.
Policies and Restrictions: Limited-Term Bond Fund does not currently
intend to invest more than 25% of its total assets in CMOs.
Asset Strategy Fund does not currently intend to invest more than 40% of
its total assets in mortgage-backed securities.
Municipal Bond Fund does not currently intend to invest more than 10% of
its assets in mortgage-backed securities.
Total Return Fund does not currently intend to invest more than 5% of its
total assets in mortgage-backed securities. Growth Fund and International
Growth Fund do not intend to invest in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: Limited-Term Bond Fund does not currently
intend to invest more than 15% of its total assets in stripped securities.
Total Return Fund and Asset Strategy Fund do not currently intend to invest more
than 5% of their respective total assets in stripped securities. Growth Fund,
Municipal Bond Fund and International Growth Fund do not currently intend to
invest in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed securities, involve special risks, including (i) possible
imperfect or no correlation between price movements of the portfolio investments
(held or intended to be purchased) involved in the transaction and price
movements of the instruments involved in the transaction, (ii) possible lack of
a liquid secondary market for any particular instrument at a particular time,
(iii) the need for additional portfolio management skills and techniques, (iv)
losses due to unanticipated market price movements, (v) the fact that, while
such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction, (vi) incorrect forecasts
by WRIMCO concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by a Fund on options
it purchases, and (viii) the possible inability of a Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Funds' respective portfolios diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not be
the same investment that is being hedged. WRIMCO will attempt to create a
closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of a Fund's
portfolio of investments and may use some of these instruments to adjust the
return characteristics of a Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative techniques for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with a
Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate, currency exchange rate or stock market trends by WRIMCO may still not
result in a successful transaction. WRIMCO may be incorrect in its expectations
as to the extent of various interest or currency exchange rate or stock market
movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
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 goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund has sold a security on a delayed-delivery basis, a
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund and Asset Strategy Fund may purchase securities
in which it may invest on a when-issued or delayed-delivery basis or sell them
on a delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund
may not purchase securities subject to repurchase agreements. Each of the other
Funds may purchase securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale. Certain
restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: International Growth Fund may purchase
restricted foreign securities, provided that, after such purchase, not more than
5% of its total assets consist of restricted securities. Asset Strategy Fund
may invest in restricted securities. The other Funds do not intend to invest in
restricted securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund
and International Growth Fund each may not invest more than 10% of its net
assets in illiquid investments.
Asset Strategy Fund may not purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in
a security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund may buy a security if, as a result, 25% or
more of the Fund's total assets would then be invested in securities of issuers
having their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S. Government
Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund,
Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and International
Growth Fund may borrow money from banks for temporary, extraordinary or
emergency purposes but only up to 5% of their respective assets. Borrowing for
temporary measures may include borrowing to cover redemptions or settlements of
securities transactions. Total Return Fund, Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund and International Growth Fund do not intend to borrow
for other than emergency or extraordinary purposes.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of
Total Return Fund, Growth Fund or International Growth Fund, or 30% of the
assets of Limited-Term Bond Fund, may be loaned at any one time. As a
fundamental policy, Asset Strategy Fund may not lend more than 10% of its total
assets at one time. As a fundamental policy, Municipal Bond Fund may not lend
its securities.
Other Instruments may include rights, warrants, and securities of closed-
end investment companies. As a shareholder in an investment company, a Fund
would bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, Growth Fund and, as
an operating policy, Asset Strategy Fund may purchase warrants on up to 5% of
their respective assets at the time of investment, subject to certain
limitations explained in the SAI. As a fundamental policy, International Growth
Fund may purchase warrants and rights to purchase securities, provided that, as
a result of such purchase, not more than 5% of its total assets consist of
warrants, rights or a combination thereof, subject to certain limitations stated
in the SAI.
No Fund may invest more than 5% of its assets taken at market value at the
time of investment in companies, including predecessors, with less than three
years continuous operation. This restriction does not apply to U.S. Government
Securities or to CMOs, other mortgage-related securities, asset-backed
securities or indexed securities.
As a fundamental policy, Total Return Fund, Growth Fund and International
Growth Fund may buy shares of other investment companies that do not redeem
their shares only if they do so in a regular transaction in the open market and
in compliance with the requirements of the Investment Company Act of 1940. Each
of these Funds may purchase such securities if, as a result of such purchase, no
more than 10% of its total assets are invested in such securities. Asset
Strategy Fund does not currently intend to purchase securities of other
investment companies that do not redeem their shares except in the open market
where no commission except the ordinary broker's commission is paid and if, as a
result of such purchase, not more than 10% of its total assets are invested in
such securities.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum is
$2,250 if the investor's spouse has less than $250 of earned income in the
taxable year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many of
the same advantages as a Keogh, but with fewer administrative requirements.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations of all sizes to contribute a
percentage of their wages on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
Federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers to
Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and
its account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' shares are sold without a sales
charge.
A Fund's Class B NAV is the value of a single Class B share of that Fund.
A Fund's Class B NAV is computed by adding, with respect to that class, the
value of that Fund's investments, cash and other assets, subtracting its
liabilities, and then dividing the result by the number of Class B shares
outstanding.
The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a dealer in bonds that offers a pricing service.
Short-term debt securities are valued at amortized cost, which approximates
market value. Other assets are valued at their fair value by or at the
direction of the Board of Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges
which may trade on Saturdays or on customary U.S. national business holidays
when the NYSE is closed. Consequently, the NAV of such Fund shares may be
significantly affected on days when the Funds do not price their shares and when
you have no access to the Funds.
When you place an order to buy shares, your order will be processed at the
next NAV calculated after your order is received and accepted. Note the
following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
The Funds do not issue certificates representing shares of a Fund.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and whether
you are subject to backup withholding for failing to report income to the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account$1,000
For certain exchanges$100
For certain retirement accounts and accounts opened through Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges$100
For Automatic Investment Service $25
The minimum investment required to open an account may be waived or reduced
for purchases by employees of Waddell & Reed, Inc. or its affiliates, certain
pension and retirement plan accounts and participants in automatic investment
plans.
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
a letter showing your account number, the account registration, and stating
the Fund whose shares you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The Corporation will redeem your Class B shares at their NAV next
calculated after receipt of a written request for redemption in good order,
subject to the contingent deferred sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
any time during the calendar year of investment and the first full calendar year
after the calendar year of investment 3%
second full calendar year 2%
third full calendar year 1%
after third full calendar year 0%
The deferred sales charge will be applied to the total amount invested
during a calendar year to acquire shares or the value of the shares redeemed,
whichever is less. All investments made during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
deferred sales charge.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on
certain redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Corporation may require a signature guarantee in
certain situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
Contingent Deferred Sales Charge. A contingent deferred sales charge may
be assessed against your redemption amount and paid to Waddell & Reed, Inc. (the
"Distributor"), subject to the limitation described under "Distribution" and as
further described below. The purpose of the deferred sales charge is to
compensate the Distributor for the costs incurred by it in connection with the
sale of a Fund's Class B shares. The deferred sales charge will not be imposed
on Class B shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of a shareholder's account
resulting from capital appreciation above the amount paid for Class B shares
purchased during the deferred sales charge period.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing payment of dividends and distributions and then of Class B
shares held by the shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem a
specific dollar amount, will redeem additional Class B shares equal in value to
the deferred sales charge. For example, should you request a $1,000 redemption
and the applicable deferred sales charge is $27, the Fund will redeem shares
having an aggregate NAV of $1,027, absent different instructions.
The deferred sales charge will not apply in the following circumstances:
in connection with redemptions of Class B shares requested within one year of
the shareholder's death or disability, provided the Corporation is notified
of the death or disability at the time of the request and furnished proof of
such event satisfactory to the Distributor.
in connection with redemptions of Class B shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code section 403(b)(7) custodial account, or a tax-
free return of an excess contribution, or that otherwise results from the
death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a result of
a subsequent law or legislation, the continuation of its investment would be
improper.
in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for a
Fund.
in connection with redemptions the proceeds of which are reinvested in Class
B shares of a Fund within thirty days after such redemption.
in connection with the exercise of certain exchange privileges.
on redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B shares of a Fund if the aggregate NAV of those shares
is less than $500.
in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with a Fund or by a
former shareholder of such investment company of Class B shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any
time without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain notices.
The Corporation reserves the right to redeem at NAV all Class B shares
of a Fund owned or held by you having an aggregate NAV of less than $500. The
Corporation will give you notice of its intention to redeem your shares and a
60-day opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares of that Fund to $500. These redemptions are
not subject to the deferred sales charge. The Corporation will not apply its
redemption right to individual retirement plan accounts, retirement accounts or
accounts which have an aggregate NAV of less than $500 due to market forces.
You may reinvest in any one of the six Funds all or part of the amount you
redeemed by sending to the Fund the amount you want to reinvest. If you
reinvest within thirty days after the date of your redemption, the Distributor
will, with your reinvestment, restore an amount equal to the deferred sales
charge attributable to the amount reinvested by adding the deferred sales charge
amount to your reinvestment. For purposes of determining future deferred sales
charges, the reinvestment will be treated as a new investment. You may do this
only once as to shares of the Corporation. This privilege may be eliminated or
modified at any time without prior notice to shareholders.
Under the terms of the 401(k) prototype plan which the Distributor has
available, the plan may have the right to make a loan to a plan participant by
redeeming Corporation shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested by
the plan in shares of any of the Funds in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will be
mailed to your household, even if you have more than one account with the Funds.
Call 913-236-2000 if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class B shares of any of the Funds and buy Class B
shares of another Fund, or Class B shares of United Cash Management, Inc., a
fund in the United Group of Mutual Funds, without payment of a deferred sales
charge. The time period with respect to the deferred sales charge will continue
to run. Subject to certain conditions, automatic monthly exchanges of Class A
shares of United Cash Management, Inc. may be made into the Funds.
Exchanges may only be made into Funds which are legally registered for sale
in the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund
account, or between Fund accounts, automatically. While regular investment
plans do not guarantee a profit and will not protect you against loss in a
declining market, they can be an excellent way to invest for retirement, a home,
educational expenses, and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing account with Waddell & Reed
Funds, Inc.
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund in Waddell & Reed
Funds, Inc., whether in the same or a different account
Minimum Frequency
$100 Monthly
Dividends, Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses, at the following times: Total Return Fund, Growth Fund and
International Growth Fund, annually in December; Asset Strategy Fund, quarterly
in March, June, September and December; and Limited-Term Bond Fund and Municipal
Bond Fund, declared daily and paid monthly. Net capital gains (and any net
realized gains from foreign currency transactions) ordinarily are distributed in
December. Each Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on certain undistributed income and capital
gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will
be automatically paid in additional Class B shares of the distributing Fund.
If you do not indicate a choice on your application, you will be assigned
this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in additional Class B 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 Class B shares of the distributing Fund.
Taxes
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gains
over net short-term capital losses) that are distributed to its shareholders.
In addition, Municipal Bond Fund intends to continue to qualify to pay "exempt-
interest" dividends, which requires, among other things, that at the close of
each calendar quarter at least 50% of the value of its total assets must consist
of obligations the interest on which is excludable from gross income under
section 103(a) of the Code.
There are certain tax 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 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 other 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.
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 must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; that Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. 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.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs 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.
Withholding. Each Fund is required to withhold 31% of all taxable
dividends, capital gains 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 capital gains 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 (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly-purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end, diversified management investment
company organized as a corporation under Maryland law on January 29, 1992.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has six series of shares (the "Funds"), each of which
operates as a separate mutual fund with separate assets and liabilities. Each
Fund is a diversified fund. An investor in one of the Funds has an interest
only in that Fund.
Each Fund has two classes of shares. Prior to December 2, 1995, the Funds
offered only one class of shares to the public. Shares outstanding on that date
were designated as Class B shares, which are offered by this Prospectus. In
addition, the Funds offer Class Y shares through a separate Prospectus. Class Y
shares are designed for institutional investors. Class Y shares are not subject
to a contingent deferred sales charge and are not subject to redemption fees.
Class Y shares are subject to Rule 12b-1 fees and may have other expenses that
differ in amount from those of the Class B shares. Additional information about
Class Y shares may be obtained by calling 913-236-2000 or by writing to Waddell
& Reed, Inc. at the address on the inside back cover of this Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by a Fund of a request in writing signed by shareholders holding not less than
10% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Corporation are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Corporation, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or class, in which case only the shareholders of the affected Fund or class
is entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have 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 United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day
management of the portfolio of Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund and Vice President of another investment company for
which WRIMCO serves as investment manager. Mr. Seferovich has served as the
portfolio manager of investment companies managed by Waddell & Reed, Inc. and
its successor, WRIMCO, since February 1989 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management
of the portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Mr. Sterner was Chief Investment Officer of The
Merchants Bank from 1985 to August 1992.
John M. Holliday is primarily responsible for the day-to-day management of
the portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Thomas A. Mengel is primarily responsible for the day-to-day management
of the portfolio of International Growth Fund. Mr. Mengel has held his Fund
responsibilities since May 1, 1996. Mr. Mengel is Vice President of WRIMCO.
From 1993 to 1996, Mr. Mengel was the President of Sal. Oppenheim jr. & Cie.
Securities, Inc.; from 1992 to 1993, Mr. Mengel was a Vice President at Hauck
and Hope Securities; and from 1989 to 1992, Mr. Mengel was the Manager of German
Equities at Berliner Bank, in Berlin, Germany.
James D. Wineland is primarily responsible for the day-to-day management of
the portfolio of Asset Strategy Fund. Mr. Wineland has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Wineland has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1988 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1984.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole
distributor of the Corporation's shares. Waddell & Reed, Inc. also serves as
underwriter for each of the funds in the United Group of Mutual Funds and serves
as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing so
may consider sales of shares of each Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in the share
price or dividends of that Fund; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the
close of business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
The management fee is accrued and paid to WRIMCO daily. The management fee
for Growth Fund, International Growth Fund and Asset Strategy Fund is higher
than that of most funds. Prior to April 20, 1995, the management fee for
International Growth Fund (formerly Global Income Fund) was computed at the
annual rate of 0.66%.
For the fiscal year ended March 31, 1996, management fees for each Fund
as a percentage of each such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.80%
(formerly Global
Income Fund)
Asset Strategy
Fund 0.76%
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class B shares, each Fund pays the Shareholder Servicing Agent a monthly fee for
each Class B shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month. Inquiries concerning your accounts should be sent
to the Shareholder Servicing Agent at the address shown on the inside back cover
of this Prospectus or to the Corporation.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
For the fiscal year ended March 31, 1996, total expenses for each Fund's
Class B shares as a percentage of average net assets were as follows: Total
Return Fund 1.99%; Growth Fund 2.14%; Limited-Term Bond Fund 2.10%; Municipal
Bond Fund 1.93%; International Growth Fund (formerly Global Income Fund) 2.50%;
and Asset Strategy Fund 2.54%.
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. A turnover rate in excess of 100%
could be considered high.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized
under a Distribution and Service Plan (the "Plan"), may finance the distribution
of the Class B shares of the Funds and/or the service and maintenance of Class B
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 1%
annually of the Fund's average net assets of its Class B shares. There are two
parts to this fee: up to 0.75% may be paid to the Distributor for distribution
services and distribution expenses including commissions paid by the Distributor
to its sales representatives and managers (the "distribution fee") with respect
to the distribution of the particular Fund's Class B shares, and up to 0.25% may
be paid to the Distributor to finance the provision of certain personal services
by the Distributor and Waddell & Reed Services Company to Class B shareholders
and the provision of services to maintain Class B shareholder accounts (the
"service fee").
In addition to these fees, the Distributor may be compensated for
distribution of the Class B shares of a Fund by a contingent deferred sales
charge ("deferred sales charge") imposed at the time of redemption. See "About
Your Account."
The distribution fee and the deferred sales charge are designed to allow
investors to purchase Class B shares without a front-end sales charge and at the
same time to allow the Distributor to pay commissions to its field sales force
and pay other expenses of distribution including the cost of prospectuses for
prospective investors, sales literature, advertising, sales office expenses and
overhead. In this respect, the distribution fee and deferred sales charge are
comparable to a front-end sales charge. See "Expenses" for the amount of these
charges and the service fee that may be paid over certain periods. The
distribution fee would be the equivalent of a 6.25% and 7.25% front-end sales
charge after 9 and 10.5 years respectively, assuming a 5% growth rate. These
are the maximum sales charges permitted under Rules of the National Association
of Securities Dealers, Inc. (the "NASD") for asset-based sales charges and
front-end sales charges, respectively, were the Corporation's Class B shares
offered with such charges.
No payment of the distribution fee will be made, and no deferred sales
charge will be paid, to the Distributor by any Fund if, and to the extent that,
the aggregate of the distribution fees paid by the Fund and the deferred sales
charges received by the Distributor would exceed the maximum amount of such
charges that the Distributor is permitted to receive under NASD rules as then in
effect.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
Waddell & Reed Funds, Inc.
Class B Shares
PROSPECTUS
June 30, 1996
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
WRP3000(6-96)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated June 30, 1996. The SAI is available free upon request to the Corporation
or Waddell & Reed, Inc., its principal underwriter and distributor, at the
address or telephone number below. The SAI is incorporated by reference into
this Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Waddell & Reed Funds, Inc.
Class Y Shares
Waddell & Reed Funds, Inc. (the "Corporation") is a management investment
company that has six separate funds (the "Funds"), each of which is designed for
investors with different goals. Total Return Fund seeks to provide current
income while seeking capital growth. Growth Fund seeks capital appreciation.
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital. Municipal Bond Fund seeks to provide
income which is not subject to Federal income taxation. International Growth
Fund seeks long-term appreciation as its primary goal and realization of income
as its secondary goal. Asset Strategy Fund seeks high total return with reduced
risk over the long term.
This Prospectus describes one class of shares of each of the Funds--Class Y
shares.
Prospectus
June 30, 1996
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 6
FINANCIAL HIGHLIGHTS 12
PERFORMANCE 18
Explanation of Terms 18
ABOUT WADDELL & REED 20
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS 21
Investment Goals and Principles 21
Risk Considerations 27
Securities and Investment Practices 27
ABOUT YOUR ACCOUNT 46
Buying Shares 46
Minimum Investments 48
Adding to Your Account 48
Selling Shares 48
Telephone Transactions 50
Shareholder Services 50
Personal Service 50
Reports 51
Exchanges 51
Dividends, Distributions and Taxes 51
Distributions 51
Taxes 52
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS 55
WRIMCO and Its Affiliates 56
Breakdown of Expenses 58
Management Fee 58
Other Expenses 59
Distribution 60
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes the Class Y shares of each of the Funds of
Waddell & Reed Funds, Inc. (the "Corporation"), an open-end, management
investment company. Each Fund has different investment goals and policies.
Each of the Funds is a diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital growth.
This Fund invests primarily in common stocks, or securities convertible into
common stocks, of companies that have a record of paying regular dividends on
common stock and also have the potential for capital appreciation. Although
common stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of its assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return with reduced risk over the long
term. This Fund seeks to reduce risk over the long term by spreading its assets
among stocks, bonds and short-term instruments, both in the United States and
abroad, attempting to moderate the risk potential of investing solely in one
class of instruments. The Fund designates a mix which represents the way the
Fund's investments will generally be allocated over the long term. This mix
will vary over short-term periods as the Fund's investment manager adjusts the
Fund's holdings -- within defined ranges -- based on the current outlook for the
different markets. Because the Fund owns different types of investments, its
performance will be affected by a variety of factors.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the six
Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class Y shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class Y share of
a Fund is the net asset value of a Class Y share of that Fund. A sales charge
is not incurred upon purchase of Class Y shares of a Fund, nor are the Class Y
shares subject to a contingent deferred sales charge. See "About Your Account"
for information on how to purchase Class Y shares of each of the Funds.
Redemptions: You may redeem your shares at net asset value. When you sell
your Class Y shares, they may be worth more or less than what you paid for them.
See "About Your Account" for a description of redemption procedures.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Funds" for information
about the risks associated with each Fund's investments.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).34
Management fees 0.71%
12b-1 fees35 0.25%
Other expenses 0.27%
Total Fund operating
expenses 1.23%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return36 and (2) redemption at the end of each time period:
1 year $13
3 years $39
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
34Expense ratios are based on: the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; the maximum 12b-1
fee; and the other expenses attributable to the Class Y shares that are
anticipated for the current year based on annualization of the Class Y expenses
incurred during the fiscal year ended March 31, 1996. Actual expenses may be
greater or lesser than those shown.
35See "Breakdown of Expenses" for further information about the 12b-1
fee.
36Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).37
Management fees38 0.81%
12b-1 fees39 0.25%
Other expenses 0.28%
Total Fund operating
expenses 1.34%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return40 and (2) redemption at the end of each time period:
1 year $14
3 years $42
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."
37Expense ratios are based on: the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; the maximum 12b-1
fee; and the other expenses attributable to the Class Y shares that are
anticipated for the current year based on annualization of the Class Y expenses
incurred during the fiscal year ended March 31, 1996. Actual expenses may be
greater or lesser than those shown.
38The management fee for Growth Fund is higher than that of most funds.
39See "Breakdown of Expenses" for further information about the 12b-1
fee.
40Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Limited-Term Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).41
Management fees 0.56%
12b-1 fees42 0.25%
Other expenses 0.53%
Total Fund operating
expenses 1.34%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return43 and (2) redemption at the end of each time period:
1 year $14
3 years $42
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."
41Expense ratios are based on: the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; the maximum 12b-1
fee; and the other expenses attributable to the Class Y shares that are
anticipated for the current year based on annualization of the Class Y expenses
incurred during the fiscal year ended March 31, 1996. Actual expenses may be
greater or lesser than those show.
42See "Breakdown of Expenses" for further information about the 12b-1
fee.
43Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).44
Management fees 0.56%
12b-1 fees45 0.25%
Other expenses 0.39%
Total Fund operating
expenses 1.20%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return46 and (2) redemption at the end of each time period:
1 year $12
3 years $38
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."
44Expense ratios are based on: the management fees and other Fund-level
expenses of the Fund for the fiscal year ended March 31, 1996; the maximum 12b-1
fee; and the other expenses attributable to the Class Y shares that are
anticipated for the current year based on annualization of Class Y expenses
incurred during the fiscal year ended March 31, 1996. Actual expenses may be
greater or lesser than those shown.
45See "Breakdown of Expenses" for further information about the 12b-1
fee.
46Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund47
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).48
Management fees490.81%
12b-1 fees50 0.25%
Other expenses 0.72%
Total Fund operating
expenses 1.78%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return51 and (2) redemption at the end of each time period:
1 year $18
3 years $56
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
47International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
48Expense ratios are based on: the management fees, which have been restated
to reflect the current management fees which became effective April 20, 1995,
and other Fund-level expenses of the Fund for the fiscal year ended March 31,
1996; the maximum 12b-1 fee; and the other expenses attributable to the Class Y
shares that are anticipated for the current year based on annualization of the
Class Y expenses incurred during the fiscal year ended March 31, 1996. Actual
expenses may be greater or lesser than those shown.
49The management fee for International Growth Fund is higher than that of most
funds.
50See "Breakdown of Expenses" for further information about the 12b-1
fee.
51Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees520.81%
12b-1 fees53 0.25%
Other expenses 0.69%
Total Fund operating
expenses54 1.75%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return55 and (2) redemption at the end of each time period:
1 year $18
3 years $55
Asset Strategy Fund commenced operations on April 20, 1995. The expenses
are pro forma and estimated for the first fiscal year of operations. The
purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
52The management fee for Asset Strategy Fund is higher than that of most funds.
53See "Breakdown of Expenses" for further information about the 12b-1
fee.
54Expense ratios are based on: the management fees of the Fund for the
fiscal year ended March 31, 1996; the maximum 12b-1 fee; and the other expenses
attributable to the Class Y shares that are anticipated for the current year
based on annualization of the Class Y expenses incurred during the fiscal year
ended March 31, 1996. Actual expenses may be greater or lesser than those
shown.
55Use of an assumed annual return of 5% is for illustration purposes only and
is not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
TOTAL RETURN FUND
(Audited)
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the financial
statements and notes thereto, together with the report of Price Waterhouse LLP,
included in the SAI.
For a Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
--------------------
Net asset value,
beginning of
period ........... $15.32
------
Income from investment
operations:
Net investment
income........... 0.03
Net realized and
unrealized gain
on investments .. 1.03
------
Total from investment
operations ....... 1.06
------
Less dividends from net
investment income (0.00)
------
Net asset value,
end of period .... $16.38
======
Total return ....... 6.92%
Net assets, end of
period (000
omitted) .......... $87
Ratio of expenses
to average net
assets ........... 0.96%**
Ratio of net investment
income to average
net assets ....... 1.04%**
Portfolio turnover
rate ............. 16.78%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Financial Highlights
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 Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
--------------------
Net asset value,
beginning of
period ........... $20.21
------
Income from investment
operations:
Net investment
income........... .04
Net realized and
unrealized gain
on investments .. .79
------
Total from investment
operations ....... .83
------
Less dividends from net
investment income (0.00)
------
Net asset value,
end of period .... $21.04
======
Total return ....... 4.11%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.17%**
Ratio of net investment
income to average
net assets ....... 0.78%**
Portfolio turnover
rate ............. 31.84%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Financial Highlights
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 Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
--------------------
Net asset value,
beginning of
period ........... $10.16
------
Income from investment
operations:
Net investment
income........... .11
Net realized and
unrealized loss
on investments .. (0.16)
------
Total from investment
operations ....... (0.05)
------
Less dividends from net
investment income (0.11)
------
Net asset value,
end of period .... $10.00
======
Total return ....... -0.49%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.18%**
Ratio of net investment
income to average
net assets ....... 4.70%**
Portfolio turnover
rate ............. 22.08%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Financial Highlights
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 Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
--------------------
Net asset value,
beginning of
period ........... $10.94
------
Income from investment
operations:
Net investment
income........... .12
Net realized and
unrealized loss
on investments .. (0.31)
------
Total from investment
operations ....... (0.19)
------
Less dividends from net
investment income (0.12)
------
Net asset value,
end of period .... $10.63
======
Total return ....... -1.80%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.18%**
Ratio of net investment
income to average
net assets ....... 4.33%**
Portfolio turnover
rate ............. 42.02%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Financial Highlights
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 Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
--------------------
Net asset value,
beginning of
period ........... $9.70
------
Income from investment
operations:
Net investment
income........... .02
Net realized and
unrealized gain
on investments .. .23
------
Total from investment
operations ....... .25
------
Less dividends from net
investment income (0.00)
------
Net asset value,
end of period .... $9.95
======
Total return ....... 2.58%
Net assets, end of
period (000
omitted) .......... $7
Ratio of expenses
to average net
assets ........... 1.84%**
Ratio of net investment
income to average
net assets ....... 1.07%**
Portfolio turnover
rate ............. 88.55%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Financial Highlights
ASSET STRATEGY 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 Class Y share outstanding throughout the period:
For the
period from
December 29, 1995
to March 31, 1996*
-------------------
Net asset value,
beginning of
period ........... $10.23
------
Income from investment
operations:
Net investment
income........... .07
Net realized and
unrealized loss
on investments .. (0.08)
------
Total from investment
operations ....... (0.01)
------
Less dividends from net
investment income (0.06)
------
Net asset value,
end of period .... $10.16
======
Total return ....... -0.25%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.95%**
Ratio of net investment
income to average
net assets ....... 2.34%**
Portfolio turnover
rate ............. 75.02%
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over
a given period, assuming reinvestment of any dividends and distributions. A
cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results.
Non-standardized performance information is for periods other than those
required to be presented or differs otherwise from standardized performance
information.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period. Tax
equivalent yield is calculated by applying the stated income tax rate to only
the net investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average, or non-market indices or averages of mutual fund industry
groups. The Funds may quote their performance rankings and/or other information
as published by recognized independent mutual fund statistical services or by
publications of general interest. In connection with a ranking, the Funds may
provide additional information, such as the particular category to which it
relates, the number of funds in the category, the criteria upon which the
ranking is based, and the effect of sales charges, fee waivers and/or expense
reimbursements.
All performance information that a Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of any Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in the Fund's annual and semiannual reports, which are sent to all shareholders.
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling 913-236-2000.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal(s) of each Fund are set forth below. There is no assurance
that a Fund will achieve its goal.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking
capital growth. The Fund seeks to achieve this goal by investing primarily in
common stocks, or securities convertible into common stocks, of companies that
have a record of paying regular dividends on common stock and also have the
potential for capital appreciation.
When conditions are such that stocks with high yields are less attractive
than other common stocks, Total Return Fund may hold lower yielding or non-
dividend-paying common stocks because of their prospects for capital growth. At
other times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Total Return Fund's assets, including, without limitation, the following:
(i) hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Growth Fund
The goal of Growth Fund is capital appreciation. The Fund seeks to achieve
this goal through a diversified holding of securities consisting primarily of
common stocks, or securities convertible into common stocks, of companies that
offer, in the opinion of WRIMCO, above-average growth potential, including
relatively new or unseasoned companies. Growth Fund is not intended for
investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be
subject to rapid and wide fluctuation. In selecting companies, WRIMCO usually
looks for such characteristics as aggressive or creative management, technology
or specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs. During normal market conditions, the Fund will have at
least 65% of its assets invested in growth securities.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve this
goal by investing primarily in debt securities of investment grade, including
U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted average
maturity of its portfolio of not less than two years and not more than five
years. The maturity of collateralized mortgage obligations and other asset-
backed securities will be deemed to be the estimated average life of such
securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may
purchase are mortgage-backed securities of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and the Federal National Mortgage Association ("Fannie Mae"). These
mortgage-backed securities include pass-through securities, participation
certificates and collateralized mortgage obligations. The Fund will invest in
U.S. Government Securities not backed by the full faith and credit of the United
States only when WRIMCO is satisfied the credit risk is acceptable. The debt
securities, other than U.S. Government Securities, in which Limited-Term Bond
Fund invests include, without limitation, corporate bonds, medium-term notes,
asset-backed securities (such as mortgage-backed securities) and other financial
obligations that are commonly considered debt, all of which securities will be
denominated in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Limited-Term Bond Fund's assets, including, without limitation, the
following: (i) shorten the average maturity of the Fund's portfolio; (ii) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (iii) emphasize debt securities of a higher quality
than those the Fund would ordinarily hold; or (iv) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income taxation. The Fund seeks to achieve this goal by investing
primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the
interest on which is not includable in gross income for Federal income tax
purposes. See "Dividends, Distributions and Taxes" for information concerning
the alternative minimum tax. Municipal Bond Fund and WRIMCO rely on the opinion
of bond counsel for the issuer in determining whether obligations are municipal
bonds.
The types of municipal bonds in which Municipal Bond Fund may invest
include "general obligation" bonds, "revenue" bonds and certain "industrial
development" bonds. Municipal obligations in which the Fund may invest also
include municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are (i)
U.S. Government Securities, (ii) bank obligations of domestic banks or savings
and loan associations that are subject to regulation by the U.S. Government
(including, without limitation, certificates of deposit, letters of credit and
acceptances), and (iii) commercial paper rated at least A by a recognized
statistical rating organization.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by Municipal Bond Fund may
change. Such changes, actual or expected, may also affect the value of these
debt securities, and in turn the value of Municipal Bond Fund's shares.
Dividends paid by Municipal Bond Fund that are derived from income from taxable
obligations, options and futures contracts are subject to Federal income tax.
See "Dividends, Distributions and Taxes."
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Municipal Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
International Growth Fund
The primary goal of International Growth Fund is the long-term appreciation
of your investment. Realization of income is a secondary goal. The Fund seeks
to achieve these goals by investing in securities issued by companies or
governments of any nation. The securities WRIMCO selects to attempt to achieve
the Fund's primary goal will be issued by companies that WRIMCO believes have
the potential for long-term growth.
There are three main kinds of securities that International Growth Fund
will own: common stocks, preferred stocks and debt securities. During normal
market conditions, the Fund will have at least 65% of its assets invested in
growth securities. The securities that the Fund purchases because they may
increase in value over the long term will usually be common stocks or securities
that may be converted into common stocks or rights for the purchase of common
stocks. All or a substantial amount of International Growth Fund's assets may
be invested in foreign securities if, in WRIMCO's opinion, doing so might assist
in achieving the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of the
securities in the Fund's portfolio, WRIMCO may take certain steps with respect
to up to all of International Growth Fund's assets, including, without
limitation, the following: (i) invest in either debt securities (including
commercial paper or U.S. Government Securities) or preferred stocks or both; or
(ii) invest completely or substantially in U.S. securities. A defensive posture
may reduce the Fund's yield.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Asset Strategy Fund
The goal of Asset Strategy Fund is high total return with reduced risk over
the long term. The Fund seeks to achieve this goal by allocating its assets
among stocks, bonds and short-term instruments.
Allocating assets among different types of investments allows Asset
Strategy Fund to take advantage of opportunities wherever they may occur, but
also subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and
makes changes to favor investments that it believes provide the most favorable
outlook for achieving the Fund's goal. Although WRIMCO uses its expertise and
resources in choosing investments and in allocating assets, WRIMCO's decisions
may not always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments. The stock class includes equity securities of all types.
The bond class includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The short-term class includes all types of short-term instruments with
remaining maturities of three years or less. Within each of these classes,
Asset Strategy Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within
specified ranges. Asset Strategy Fund's mix indicates the benchmark for its
combination of investments in each class over time. WRIMCO may change the mix
within the specified ranges from time to time. The range and approximate
percentage of the mix for each asset class are shown below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
- --------- ------
Stock
class 10-60%
40%
Bond
class 20-60%
40%
Short-term
class 0-70%
20%
Asset Strategy Fund's approach spreads the Fund's assets among all three
classes, attempting to moderate the risk potential of stocks, bonds and short-
term instruments. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try
to pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time. Under normal
circumstances, a single reallocation will not involve more than 10% of Asset
Strategy Fund's total assets.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, as a temporary defensive measure at times when WRIMCO
believes that a mix of stocks, bonds and certain short-term instruments does not
offer a good investment opportunity, it may temporarily invest up to all of
Asset Strategy Fund's assets in money market instruments rated A-1 by Standard &
Poor's Ratings Services ("S&P") or Prime 1 by Moody's Investors Service, Inc.
("MIS"), or unrated securities judged by WRIMCO to be of equivalent quality.
S&P and MIS ratings are described in Appendix A to the SAI. A defensive posture
may reduce the Fund's yield.
Asset Strategy Fund diversifies across investment types more than most
mutual funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Fund may invest, strategies WRIMCO
may employ in pursuit of the Fund's goal and a summary of risks associated with
these instrument types and investment practices.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to
varying degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of each Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of each Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Because each Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, indexed securities,
swaps, caps, collars, floors, stripped securities and mortgage-backed
securities. The use of derivative instruments involves special risks. See
"Risks of Derivative Instruments" for further information on the risks of
investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest, and strategies WRIMCO may employ in
pursuit of the Funds' 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 that Fund achieve its
goal. As a shareholder, you will receive annual and semiannual reports
detailing your Fund's holdings.
Certain of the investment policies and restrictions of each Fund are also
stated below. A fundamental policy of a Fund may not be changed without the
approval of the shareholders of that Fund. Operating policies may be changed by
the Board of Directors without the approval of the affected shareholders. The
goal of each Fund is a fundamental policy. Unless otherwise indicated, the
types of securities and other assets in which a Fund may invest and other
policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which a
Fund (other than Municipal Bond Fund) invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government Securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government. Not all U.S. Government Securities are
backed by the full faith and credit of the United States. Some are backed by
the right of the issuer to borrow from the U.S. Treasury; others are backed by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while others are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment.
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.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). In addition, Asset Strategy Fund will treat unrated
securities judged by WRIMCO to be of equivalent quality to a rated security to
be equivalent to securities having that rating. Debt securities rated at least
BBB by S&P or Baa by MIS are considered to be investment grade debt securities.
Securities rated BBB or Baa may have speculative characteristics. Debt
securities rated D by S&P or C by MIS are in payment default or are regarded as
having extremely poor prospects of ever attaining any real investment standing.
While credit ratings are only one factor WRIMCO relies on in evaluating high-
yield debt securities, certain risks are associated with credit ratings. Credit
ratings evaluate the safety of principal and interest payments, not market value
risk. Credit ratings for individual securities may change from time to time,
and a Fund may retain a portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately-operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Corporation's Board
of Directors. Unrated municipal lease obligations will be considered to be
illiquid. In determining the credit quality of unrated municipal lease
obligations, one of the factors, among others, to be considered will be the
likelihood that the lease will not be canceled. Certain "non-appropriation"
lease obligations may present special risks because the municipality's
obligation to make future lease or installment payments depends on money being
appropriated each year for this purpose.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of
Municipal Bond Fund's net assets will be invested during normal market
conditions in municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal
bonds of investment grade.
Municipal Bond Fund does not intend to invest 25% or more of its assets in
industrial development bonds.
Debt Holdings, by Ratings. During the fiscal year ended March 31, 1996,
the percentage of the assets of Asset Strategy Fund invested in debt securities
in each of the rating categories of S&P and the corporate debt securities not
rated by an established rating service, determined on a dollar-weighted average,
were as follows:
Percentage of
Rated Assets of Asset
by S&P Strategy Fund
- ------ ----------------
AAA 35.6%
AA 5.4
A 13.4
BBB 4.3
BB 2.3
B 2.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated(equivalent to)
AAA 0.0%
AA 0.0
A 0.0
BBB 0.0
BB 0.0
B 0.0
CCC 0.3
CC 0.0
C 0.0
D 0.0
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in Asset Strategy Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to
the SAI. The Funds (other than Municipal Bond Fund) may invest in preferred
stock rated in any rating category by an established rating service and unrated
preferred stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities have unique investment
characteristics in that they generally have higher yields than those of common
stocks of the same or similar issuers, but lower yields than comparable
nonconvertible securities, are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and provide the
potential for capital appreciation if the market price of the underlying common
stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: At least 65% of the total assets of Limited-
Term Bond Fund will be invested during normal market conditions in bonds.
At least 65% of the total assets of Municipal Bond Fund will be invested
during normal market conditions in bonds exclusive of other municipal debt
obligations. Up to 10% of Municipal Bond Fund's assets may be invested in debt
securities other than municipal bonds ("taxable obligations").
Limited-Term Bond Fund does not intend to invest more than 50% of its
assets in securities rated in the lowest tier of investment grade debt
securities (those rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund
and International Growth Fund may not invest in non-investment grade debt
securities if as a result of such investment more than 5% of that Fund's assets
would consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-
quality debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently intend
to invest in money-market instruments rated below A-1 by S&P or Prime 1 by MIS,
or judged by WRIMCO to be of equivalent quality.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: Normally at least 80% of International Growth
Fund's assets will be invested in foreign securities. International Growth Fund
may purchase foreign securities only if they are (i) listed or admitted to
trading on a domestic or foreign securities exchange, with the exception of
warrants, rights or restricted securities, which need not be so listed or
admitted, or (ii) represented by American Depositary Receipts (receipts issued
against securities of foreign issuers deposited or to be deposited with an
American depository) so listed or admitted on a domestic securities exchange or
traded in the U.S. over-the-counter ("OTC") market, or (iii) issued or
guaranteed by any foreign government or any subdivision, agency or
instrumentality thereof.
Under normal market conditions, International Growth Fund will have at
least 65% of its assets invested in at least three different countries outside
the United States. International Growth Fund may not purchase a foreign
security if as a result more than 75% of its assets would be invested in
securities of any one foreign country. International Growth Fund will not
invest more than 25% of its total assets in the securities issued by the
government of any one foreign country.
Under normal market conditions, Asset Strategy Fund intends to limit its
investments in foreign securities to no more than 50% of total assets. Asset
Strategy Fund currently intends to limit its investments in obligations of any
single foreign government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their
respective assets in foreign securities, subject to the limitations stated in
the SAI.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain swaps, caps,
collars, floors, options, futures contracts, forward currency contracts and
indexed securities to attempt to enhance income or yield or may attempt to
reduce the overall risk of its investments by using certain options, futures
contracts, forward currency contracts, swaps, caps, collars and floors and
certain other strategies described herein. The strategies described below may
be used in an attempt to manage a Fund's foreign currency exposure as well as
other risks of a Fund's investments that can affect fluctuation in its net asset
value.
Asset Strategy Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values. These
techniques may involve derivative transactions such as buying and selling
options and futures contracts, entering into forward currency contracts or swap
agreements, and purchasing indexed securities.
Subject to the further limitations stated in the SAI, the Funds'
limitations on the above instruments are as follows: Total Return Fund and
Growth Fund may not purchase or sell options, futures contracts or options on
futures contracts if immediately thereafter the aggregate value of such
contracts and options held by the Fund would exceed 10% of its assets.
Similarly, Municipal Bond Fund may not purchase or sell options, futures
contracts or options on futures contracts if immediately thereafter the
aggregate value of such contracts and options held by the Fund would exceed 20%
of its assets. Dividends paid by Municipal Bond Fund that are derived from
income from taxable obligations, options and futures contracts are subject to
Federal income tax. See "Dividends, Distributions and Taxes." Limited-Term
Bond Fund may not purchase or sell options, futures contracts or options on
futures contracts if immediately thereafter the aggregate value of such options
and contracts held by the Fund would exceed 25% of its assets.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance the Fund's income or yield or to attempt to reduce the
overall risk of its investments. A call option gives the purchaser the right to
buy, and obligates the writer to sell, the underlying investment at the agreed
upon exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying investment at
the agreed upon exercise price during the option period. Purchasers of options
pay an amount, known as a premium, to the option writer in exchange for the
right under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the put or call. If a Fund is not able to enter into a closing
transaction on an option it has written, it will be required to maintain the
securities, or cash in the case of an option on an index, subject to the call or
the collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in cash,
a Fund cannot provide in advance for its potential settlement obligations on a
call it has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Policies and Restrictions: Total Return Fund and Growth Fund may write and
purchase listed options on domestic stock indices that are not limited to stocks
of any industry or group of industries ("broadly-based stock indices"). Total
Return Fund and Growth Fund may also write listed covered call options and
purchase listed covered put options on domestic stocks as well as purchase
listed call options and write listed put options on domestic stocks that are not
covered.
Limited-Term Bond Fund and Municipal Bond Fund may write and purchase
listed options on domestic debt securities, which securities include, without
limitation, U.S. Government Securities ("Domestic Debt Securities"). Limited-
Term Bond Fund may also write and purchase OTC options on Domestic Debt
Securities. Municipal Bond Fund may write and purchase listed options on
indices of municipal bonds ("Municipal Bond Indices").
International Growth Fund may only write covered call options on
securities that are listed on a domestic securities exchange on not more than
10% of its total assets. With respect to International Growth Fund only, a call
option is "covered" when International Growth Fund owns the securities subject
to the call or has the right to acquire them without additional payment.
International Growth Fund may only purchase call options on securities to effect
closing transactions with respect to call options it has written.
There is no limitation on the types of options that Asset Strategy Fund may
purchase and sell. See the SAI for the limitations on Asset Strategy Fund's use
of options.
Futures Contracts and Options on Futures Contracts. When a Fund purchases
a futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When a Fund sells a futures contract, it incurs
an obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed upon price.
When a Fund writes an option on a futures contract, it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If a Fund
has written a call, it assumes a short futures position. If it has written a
put, it assumes a long futures position. When the Fund purchases an option on a
futures contract, it acquires a right in return for the premium it pays to
assume a position in a futures contract (a long position if the option is a call
and a short position if the option is a put).
Policies and Restrictions: Total Return Fund and Growth Fund may buy and
sell futures contracts on broadly-based stock indices ("Stock Index Futures").
Limited-Term Bond Fund and Municipal Bond Fund may buy and sell futures on
Domestic Debt Securities ("Domestic Debt Futures"). Municipal Bond Fund may buy
and sell futures on Municipal Bond Indices ("Municipal Bond Index Futures").
Total Return Fund and Growth Fund may write and purchase options on Stock
Index Futures. Limited-Term Bond Fund and Municipal Bond Fund may write and
purchase options on Domestic Debt Futures.
International Growth Fund has no present intention to purchase or sell
futures contracts or options thereon.
There is no limitation on the types of futures contracts and options
thereon that Asset Strategy Fund may purchase and sell.
Forward Contracts and Currencies. Asset Strategy Fund, International
Growth Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Funds from adverse changes in the
relationship between the U.S. dollar and foreign currencies. For example, when
WRIMCO anticipates purchasing or selling a security, a Fund may enter into a
forward contract in order to set the exchange rate at which the transaction will
be made. A Fund also may enter into a forward contract to sell an amount of a
foreign currency approximating the value of some or all of the Fund's securities
positions denominated in such currency. Each of these four Funds may also use
forward contracts in one currency or a basket of currencies to attempt to hedge
against fluctuations in the value of securities denominated in a different
currency if WRIMCO anticipates that there will be a correlation between the two
currencies.
Each of Asset Strategy Fund, International Growth Fund, Total Return Fund
and Growth Fund may also use forward currency contracts to shift the Fund's
exposure to foreign currency exchange rate changes from one foreign currency to
another. For example, if a Fund owns securities denominated in a foreign
currency and WRIMCO believes that currency will decline relative to another
currency, it might enter into a forward contract to sell the appropriate amount
of the first foreign currency with payment to be made in the second foreign
currency. Transactions that use two foreign currencies are sometimes referred to
as "cross hedging." Use of a different foreign currency magnifies the Fund's
exposure to foreign currency exchange rate fluctuations. Each of these Funds
may also purchase forward currency contracts to enhance income when WRIMCO
anticipates that the foreign currency will appreciate in value, but securities
denominated in that currency do not present attractive investment opportunities.
International Growth Fund may hold foreign currency only in connection with
forward currency contracts, only up to four business days, as well as in
connection with the purchase or sale of foreign securities, but not otherwise.
Total Return Fund, Growth Fund and Asset Strategy Fund may purchase and sell
foreign currency and invest in foreign currency deposits. Currency conversion
involves dealer spreads and other costs, although commissions usually are not
charged.
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.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may
purchase and sell indexed securities, which are securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, as long as
WRIMCO determines that it is consistent with the Fund's goal(s) and investment
policies. Indexed securities typically, but not always, are debt securities or
deposits whose value at maturity or coupon rate is determined by reference to a
specific instrument or statistic. The performance of indexed securities depends
to a great extent on the performance of the security, currency, or other
instrument to which they are indexed, and may also be influenced by interest
rate changes in the United States and abroad. At the same time, indexed
securities are subject to the credit risks associated with the issuer of the
security, and their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may be more volatile than the
underlying instruments.
Swaps, Caps and Floors. Limited-Term Bond Fund and Municipal Bond Fund may
enter into interest rate swap transactions and purchase or sell interest rate
caps and floors as described below. These Funds may only enter into these
transactions in connection with hedging strategies. Limited-Term Bond Fund may
enter into swaps, caps and floors with respect to domestic interest rates.
Municipal Bond Fund may enter into such transactions with respect to municipal
interest rates. Each of these Funds expects to enter into these transactions
primarily to preserve a return or spread on a particular investment or portion
of its portfolio or to protect against any increase in the price of securities a
Fund anticipates purchasing at a later date.
Asset Strategy Fund is not limited in the type of swap, cap, collar or
floor it may enter into as long as WRIMCO determines it is consistent with the
Fund's goal and investment policies. Depending on how they are used, the swap,
cap, collar and floor agreements used by Asset Strategy Fund may increase or
decrease the overall volatility of its investments and its share price and
yield. The most significant factor in the performance of these agreements is
the change in the specific interest rate, currency, or other factors that
determine the amounts of payments due to and from the Fund.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed Securities may include pools of mortgages, such as
collateralized mortgage obligations ("CMOs") and stripped mortgage-backed
securities. The value of these securities may be significantly affected by
changes in interest rates, the market's perception of the issuers and the
creditworthiness of the parties involved.
The yield characteristics of mortgage-backed securities differ from those
of traditional debt securities. Among the major differences are that interest
and principal payments are made more frequently on mortgage-backed securities
and that principal may be prepaid at any time because the underlying mortgage
loans generally may be prepaid at any time. As a result, if a Fund purchases
these securities at a premium, a prepayment rate that is faster than expected
will reduce yield to maturity while a prepayment rate that is slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if a Fund purchases these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. Accelerated prepayments on securities purchased by a
Fund at a premium also impose a risk of loss of principal because the premium
may not have been fully amortized at the time the principal is repaid in full.
Timely payment of principal and interest on pass-through securities of
Ginnie Mae (but not Freddie Mac or Fannie Mae) is guaranteed by the full faith
and credit of the United States. This is not a guarantee against market decline
of the value of these securities or shares of a Fund. It is possible that the
availability and marketability (i.e., liquidity) of these securities could be
adversely affected by actions of the U.S. Government to tighten the availability
of its credit. Each Fund may invest in mortgage-backed securities as long as
WRIMCO determines that it is consistent with the Fund's goal(s) and investment
policies.
Policies and Restrictions: Limited-Term Bond Fund does not currently
intend to invest more than 25% of its total assets in CMOs.
Asset Strategy Fund does not currently intend to invest more than 40% of
its total assets in mortgage-backed securities.
Municipal Bond Fund does not currently intend to invest more than 10% of
its assets in mortgage-backed securities.
Total Return Fund does not currently intend to invest more than 5% of its
total assets in mortgage-backed securities. Growth Fund and International
Growth Fund do not intend to invest in mortgage-backed securities.
Stripped Securities are the separate income or principal components of a
debt instrument. These involve risks that are similar to those of other debt
securities, although they may be more volatile. The prices of stripped
mortgage-backed securities may be particularly affected by changes in interest
rates.
Policies and Restrictions: Limited-Term Bond Fund does not currently
intend to invest more than 15% of its total assets in stripped securities.
Total Return Fund and Asset Strategy Fund do not currently intend to invest more
than 5% of their respective total assets in stripped securities. Growth Fund,
Municipal Bond Fund and International Growth Fund do not currently intend to
invest in stripped securities.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed securities, involve special risks, including (i) possible
imperfect or no correlation between price movements of the portfolio investments
(held or intended to be purchased) involved in the transaction and price
movements of the instruments involved in the transaction, (ii) possible lack of
a liquid secondary market for any particular instrument at a particular time,
(iii) the need for additional portfolio management skills and techniques, (iv)
losses due to unanticipated market price movements, (v) the fact that, while
such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable price
movements in investments involved in the transaction, (vi) incorrect forecasts
by WRIMCO concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by a Fund on options
it purchases, and (viii) the possible inability of a Fund to purchase or sell a
portfolio security at a time when it would otherwise be favorable for it to do
so, or the possible need for a Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Funds' respective portfolios diverges from instruments
underlying a hedging instrument. Such equal price changes are not always
possible because the investment underlying the hedging instruments may not be
the same investment that is being hedged. WRIMCO will attempt to create a
closely correlated hedge but hedging activity may not be completely successful
in eliminating market value fluctuation.
WRIMCO may use derivative instruments, including securities with embedded
derivatives, for hedging purposes to adjust the risk characteristics of a Fund's
portfolio of investments and may use some of these instruments to adjust the
return characteristics of a Fund's portfolio of investments. An embedded
derivative is a derivative that is part of another financial instrument.
Embedded derivatives typically, but not always, are debt securities whose return
of principal or interest, in part, is determined by reference to something that
is not intrinsic to the security itself. The use of derivative techniques for
speculative purposes can increase investment risk. If WRIMCO judges market
conditions incorrectly or employs a strategy that does not correlate well with a
Fund's investments, these techniques could result in a loss, regardless of
whether the intent was to reduce risk or increase return. These techniques may
increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. In addition, these techniques
could result in a loss if the counterparty to the transaction does not perform
as promised or if there is not a liquid secondary market to close out a position
that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due
to the differences in the natures of those markets, are subject to distortion.
Due to the possibility of distortion, a correct forecast of general interest
rate, currency exchange rate or stock market trends by WRIMCO may still not
result in a successful transaction. WRIMCO may be incorrect in its expectations
as to the extent of various interest or currency exchange rate or stock market
movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
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 goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes the
rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund has sold a security on a delayed-delivery basis, a
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund and Asset Strategy Fund may purchase securities
in which it may invest on a when-issued or delayed-delivery basis or sell them
on a delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund
may not purchase securities subject to repurchase agreements. Each of the other
Funds may purchase securities subject to repurchase agreements.
Restricted and Illiquid Securities. Restricted securities are securities
that are subject to legal or contractual restrictions on resale. Restricted
securities may be illiquid due to restrictions on their resale. Certain
restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: International Growth Fund may purchase
restricted foreign securities, provided that, after such purchase, not more than
5% of its total assets consist of restricted securities. Asset Strategy Fund
may invest in restricted securities. The other Funds do not intend to invest in
restricted securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund
and International Growth Fund each may not invest more than 10% of its net
assets in illiquid investments.
Asset Strategy Fund may not purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in
a security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund may buy a security if, as a result, 25% or
more of the Fund's total assets would then be invested in securities of issuers
having their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S. Government
Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund,
Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund and International
Growth Fund may borrow money from banks for temporary, extraordinary or
emergency purposes but only up to 5% of their respective assets. Borrowing for
temporary measures may include borrowing to cover redemptions or settlements of
securities transactions. Total Return Fund, Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund and International Growth Fund do not intend to borrow
for other than emergency or extraordinary purposes.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of
Total Return Fund, Growth Fund or International Growth Fund, or 30% of the
assets of Limited-Term Bond Fund, may be loaned at any one time. As a
fundamental policy, Asset Strategy Fund may not lend more than 10% of its total
assets at one time. As a fundamental policy, Municipal Bond Fund may not lend
its securities.
Other Instruments may include rights, warrants, and securities of closed-
end investment companies. As a shareholder in an investment company, a Fund
would bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, Growth Fund and, as an
operating policy, Asset Strategy Fund may purchase warrants on up to 5% of their
respective assets at the time of investment, subject to certain limitations
explained in the SAI. As a fundamental policy, International Growth Fund may
purchase warrants and rights to purchase securities, provided that, as a result
of such purchase, not more than 5% of its total assets consist of warrants,
rights or a combination thereof, subject to certain limitations stated in the
SAI.
No Fund may invest more than 5% of its assets taken at market value at
the time of investment in companies, including predecessors, with less than
three years continuous operation. This restriction does not apply to U.S.
Government Securities or to CMOs, other mortgage-related securities, asset-
backed securities or indexed securities.
As a fundamental policy, Total Return Fund, Growth Fund and
International Growth Fund may buy shares of other investment companies that do
not redeem their shares only if they do so in a regular transaction in the open
market and in compliance with the requirements of the Investment Company Act of
1940. Each of these Funds may purchase such securities if, as a result of such
purchase, no more than 10% of its total assets are invested in such securities.
Asset Strategy Fund does not currently intend to purchase securities of other
investment companies that do not redeem their shares except in the open market
where no commission except the ordinary broker's commission is paid and if, as a
result of such purchase, not more than 10% of its total assets are invested in
such securities.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
_ participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when an unaffiliated
third party provides certain administrative, distribution, and/or other
support services to the plan and the plan holds the shares in an omnibus
account on the Fund's records;
_ banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support services;
and
_ government entities or authorities and corporations and to which entity an
unaffiliated third party provides certain administrative, distribution and/or
other support services where the investment is $1 million.
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and
its account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' Class Y shares are sold without a
sales charge.
To purchase by wire, you must first obtain an account number by calling 1-
800-366-2520, then mail a completed application to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
A Fund's Class Y NAV is the value of a single Class Y share of that Fund.
A Fund's Class Y NAV is computed by adding, with respect to that class, the
value of that Fund's investments, cash and other assets, subtracting its
liabilities, and then dividing the result by the number of Class Y shares
outstanding.
The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a dealer in bonds that offers a pricing service.
Short-term debt securities are valued at amortized cost, which approximates
market value. Other assets are valued at their fair value by or at the
direction of the Board of Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges
which may trade on Saturdays or on customary U.S. national business holidays
when the NYSE is closed. Consequently, the NAV of such Fund shares may be
significantly affected on days when the Funds do not price their shares and when
you have no access to the Funds.
When you place an order to buy shares, your order will be processed at the
next NAV calculated after your order is received and accepted. Note the
following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
The Funds do not issue certificates representing Class Y shares of a Fund.
When you sign your account application, you will be asked to certify
that your Social Security or taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the IRS.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation:
$10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You may make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter showing your account number, the
account registration, and indicating which Fund's shares you wish to purchase
to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission,
Kansas 66201-9217
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request in good order by Waddell
& Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on
certain redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Corporation may require a signature guarantee in
certain situations, such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
The Corporation reserves the right to redeem at NAV all Class Y shares of a
Fund owned or held by you having an aggregate NAV of less than $500. The
Corporation will give you notice of its intention to redeem your shares and a
60-day opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares of that Fund to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of 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 Class Y shares of any of the Funds and buy Class Y shares
of another Fund.
Exchanges may only be made into Funds which are legally registered for sale
in the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Dividends, Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned discount, dividends and other income earned on portfolio assets
less expenses, at the following times: Total Return Fund, Growth Fund and
International Growth Fund, annually in December; Asset Strategy Fund, quarterly
in March, June, September and December; and Limited-Term Bond Fund and Municipal
Bond Fund, declared daily and paid monthly. Net capital gains (and any net
realized gains from foreign currency transactions) ordinarily are distributed in
December. Each Fund may make additional distributions if necessary to avoid
Federal income or excise taxes on certain undistributed income and capital
gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains distributions will be
automatically paid in additional Class Y shares of the distributing Fund.
If you do not indicate a choice on your application, you will be assigned
this option.
2. Income-Earned Option. Your capital gains distributions will be
automatically paid in additional Class Y shares of the distributing Fund,
but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
distributions.
For retirement accounts, all distributions are automatically paid in
additional Class Y shares of the distributing Fund.
Taxes
Each Fund intends to continue to qualify for treatment as a regulated
investment company under the Code, so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) and net capital gains (the excess of net
long-term capital gains over net short-term capital losses) that are distributed
to its shareholders. In addition, Municipal Bond Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each calendar quarter at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
There are certain tax 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 other 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.
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 must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; that Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. 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.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs 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.
Withholding. Each Fund is required to withhold 31% of all taxable
dividends, capital gains 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 capital gains 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 (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end, diversified 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. In addition to the Class Y shares offered by this
Prospectus, the Fund has issued and outstanding Class B shares which are offered
by Waddell & Reed, Inc. through a separate Prospectus. Prior to December 2,
1995, the Fund offered only one class of shares to the public. Shares
outstanding on that date were designated as Class B shares. Class B shares are
not subject to a sales charge on purchases but are subject to a contingent
deferred sales charge if redeemed within a certain period of time. Class B
shares are subject to a Rule 12b-1 fee at an annual rate of up to 1% of the
Fund's average net assets attributable to Class B shares and may have other
expenses that differ in amount from those of the Class Y shares. Additional
information about Class B shares may be obtained by calling 913-236-2000 or by
writing to Waddell & Reed, Inc. at the address on the inside back cover of this
Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by a Fund of a request in writing signed by shareholders holding not less than
10% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Corporation are met. There will normally be no
meeting of the shareholders for the purpose of electing directors until such
time as less than a majority of directors holding office have been elected by
shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the Investment Company Act of 1940, as amended (the "1940 Act"),
applies to the Corporation, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or class, in which case only the shareholders of the affected Fund or class
is entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have 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 United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day
management of the portfolio of Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund and Vice President of another investment company for
which WRIMCO serves as investment manager. Mr. Seferovich has served as the
portfolio manager of investment companies managed by Waddell & Reed, Inc. and
its successor, WRIMCO, since February 1989 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management
of the portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Mr. Sterner was Chief Investment Officer of The
Merchants Bank from 1985 through August 1992.
John M. Holliday is primarily responsible for the day-to-day management of
the portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Thomas A. Mengel is primarily responsible for the day-to-day management
of the portfolio of International Growth Fund. Mr. Mengel has held his Fund
responsibilities since May 1, 1996. Mr. Mengel is Vice President of WRIMCO.
From 1993 to 1996, Mr. Mengel was the President of Sal. Oppenheim jr. & Cie.
Securities, Inc.; from 1992 to 1993, Mr. Mengel was a Vice President at Hauck
and Hope Securities; and from 1989 to 1992, Mr. Mengel was the Manager of German
Equities at Berliner Bank, in Berlin, Germany.
James D. Wineland is primarily responsible for the day-to-day management of
the portfolio of Asset Strategy Fund. Mr. Wineland has held his Fund
responsibilities since April 1995. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Wineland has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1988 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since November 1984.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole
distributor of the Corporation's shares. Waddell & Reed, Inc. also serves as
underwriter for each of the funds in the United Group of Mutual Funds and serves
as the distributor for TMK/United Funds, Inc.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing so
may consider sales of shares of each Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in the share
price or dividends of that Fund; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the close of
business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
The management fee is accrued and paid to WRIMCO daily. The management
fee for Growth Fund, International Growth Fund and Asset Strategy Fund is higher
than that of most funds.
For the fiscal year ended March 31, 1996, management fees for each Fund
as a percentage of each such Fund's net assets were as follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.80%
Asset Strategy
Fund 0.76%
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class Y shares, each Fund pays the Shareholder Servicing Agent a monthly fee
based on the average daily net assets of the class for the preceding month.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
The Funds may have a high portfolio turnover. See the Financial Highlights
Table for past turnover rates of Total Return Fund, Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, and International Growth Fund. Asset Strategy
Fund cannot precisely predict what its portfolio turnover rates will be;
however, it is anticipated that the annual turnover rate for the common stock
portion of its portfolio will not exceed 200% and the annual turnover rate for
the other portion of its portfolio will not exceed 200%. International Growth
Fund's ability to invest all or a substantial amount of its assets in foreign
securities may result in a higher turnover rate and higher commission costs. A
high turnover rate will increase a Fund's transaction costs and commission costs
and could generate taxable income or loss. A turnover rate in excess of 100%
could be considered high.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized
under a Distribution and Service Plan (the "Plan"), may finance the distribution
of the Class Y shares of the Funds and/or the service and maintenance of Class Y
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 0.25%
of the Fund's average net assets of its Class Y shares. There are two parts to
this fee: all or a portion of the fee may be paid to the Distributor for
distribution services and distribution expenses including commissions paid by
the Distributor to its account representatives and account managers (the
"distribution fee") with respect to a particular Fund's Class Y shares; and all
or a portion of the fee may be paid to the Distributor to finance the provision
of certain personal services by the Distributor and Waddell & Reed Services
Company to Class Y shareholders and the provision of services to maintain Class
Y shareholder accounts (the "service fee"). However, the total amount of the
distribution fee and service fee paid by a Fund pursuant to the Plan will not
exceed, on an annual basis, 0.25% of the average net assets of that Fund's Class
Y shares.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036
Shareholder Servicing Agent
Independent Accountants Waddell & Reed
Price Waterhouse LLP Services Company
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Investment Manager Shawnee Mission, Kansas
Waddell & Reed Investment 66201-9217
Management Company (913) 236-1579
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
Our INTERNET address is:
http://www.waddell.com
<PAGE>
Waddell & Reed Funds, Inc.
Class Y Shares
PROSPECTUS
June 30, 1996
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
WRP3000-Y(6-96)
printed on recycled paper
<PAGE>
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
June 30, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
(the "Prospectus") for the Class B shares or the Class Y shares, as applicable,
of Waddell & Reed Funds, Inc. (the "Corporation") dated June 30, 1996, which may
be obtained from the Corporation or its principal underwriter and distributor,
Waddell & Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information .......................... 2
Goals and Investment Policies .................... 5
Investment Management and Other Services ......... 41
Purchase, Redemption and Pricing of Shares ....... 46
Directors and Officers ........................... 53
Payments to Shareholders ......................... 59
Taxes ............................................ 60
Portfolio Transactions and Brokerage ............. 65
Other Information ................................ 69
Appendix A ....................................... 71
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's principal underwriter and
distributor (the "Distributor"), or the Corporation may from time to time
publish for one or more of the six Funds (each a "Fund" and collectively the
"Funds") total return information, yield information and/or performance rankings
in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated by assuming an initial $1,000 investment. Class B
shares redeemed during the first four years after their purchase may be subject
to a contingent deferred sales charge (the "deferred sales charge") in a maximum
amount equal to 3%. See "Purchase, Redemption and Pricing of Shares." The
average annual total return quotations for Class B shares reflect the imposition
of the maximum applicable deferred sales charge. All dividends and
distributions are assumed to be reinvested in shares of the applicable class at
net asset value as of the day the dividend or distribution is paid. No sales
load is charged on reinvested dividends or distributions on Class B shares. The
formula used to calculate the average annual total return for a particular class
of the Funds is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented that may not
reflect the deferred sales charge.
The average annual total return quotations for Class B shares of each
Fund with the maximum deferred sales charge deducted as of March 31, 1996, which
is the most recent balance sheet included in this SAI, for the periods shown
were as follows:
One Year Period Period from
From 4-1-95 9-21-92* to
to 3-31-96 3-31-96
--------------- -----------
Total Return Fund 25.75% 15.10%
Growth Fund 23.57% 25.85%
Limited-Term Bond Fund 4.41% 3.93%
Municipal Bond Fund 4.48% 6.22%
International Growth Fund 4.64% 2.93%
Asset Strategy Fund** 0.00%
*Date of initial public offering
**For the period from April 20, 1995, the date of initial public
offering, to March 31, 1996
The average annual total return quotations for the Class B shares of
each fund without the maximum deferred sales charge deducted as of March 31,
1996, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
One Year Period Period from
From 4/1/95 9/21/92* to
to 3-31-96 3-31-96
--------------- --------------
Total Return Fund 28.75% 15.10%
Growth Fund 26.57% 25.85%
Limited-Term Bond Fund 7.41% 3.93%
Municipal Bond Fund 7.48% 6.22%
International Growth Fund 7.64% 2.93%
Asset Strategy Fund** 3.00%
*Date of initial public offering
**For the period from April 20, 1995, the date of initial public
offering, to March 31, 1996
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.
Prior to December 2, 1995, the Funds offered only one class of shares to
the public. Shares of each Fund outstanding on that date were designated as
Class B shares. Since that date, Class Y shares of each of the Funds have been
available to certain institutional investors.
The aggregate total return quotations for Class Y shares as of March 31,
1996, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
Period from
inception* to
March 31, 1996:
Total Return Fund 6.92%
Growth Fund 4.11%
Limited-Term Bond Fund -0.49%
Municipal Bond Fund -1.80%
International Growth Fund 2.58%
Asset Strategy Fund -0.25%
*Each of the Funds commenced selling Class Y shares on December 29, 1995.
Yield
A yield quoted for a Fund is computed by dividing the net investment income
per share earned during the period for which the yield is shown by the maximum
offering price per share on the last day of that period according to the
following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yields computed according to the formula for the 30-day period ended
on March 31, 1996, the date of the most recent balance sheet included in this
SAI, for Class B shares of each of Limited-Term Bond Fund and Municipal Bond
Fund are:
Limited-Term Bond Fund 4.97%
Municipal Bond Fund 4.28%
The yields computed according to the formula for the 30-day period ended on
March 31, 1996, the date of the most recent balance sheet included in this SAI,
for Class Y shares of each of Limited-Term Bond Fund and Municipal Bond Fund
are:
Limited-Term Bond Fund 4.73%
Municipal Bond Fund 4.44%
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 for Class B shares of Municipal Bond Fund
computed according to the formula for the 30-day period ended on March 31, 1996,
the date of the most recent balance sheet included in this SAI, is 4.98%, 5.83%,
6.07%, 6.53% and 6.90% for marginal tax brackets of 15%, 28%, 31%, 36% and
39.6%, respectively. The tax equivalent yield computed for Class Y shares of
Municipal Bond Fund according to the formula for the 30-day period ended on
March 31, 1996, the date of the most recent balance sheet included in this SAI,
is 5.17%, 6.05%, 6.30%, 6.77% and 7.16% for marginal tax brackets of 15%, 28%,
31%, 36% and 39.6%, respectively.
Changes in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses.
Yield quotations do not reflect the imposition of the deferred sales charge
described above. If such deferred sales charge imposed at the time of
redemption was reflected, it would reduce the performance quoted.
Non-standardized performance information may also be presented.
Performance Rankings
The Distributor or the Corporation also may from time to time publish for
one or more of the six Funds in advertisements or sales material performance
rankings as published by recognized independent mutual fund statistical services
such as Lipper Analytical Services, Inc., or by publications of general interest
such as Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune
or Morningstar Mutual Fund Values. Each class of a Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Funds are described in the
Prospectus, which refers to the following investment methods and practices.
Asset Allocation
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments:
The short-term class includes all types of domestic and foreign securities
and money market instruments with remaining maturities of three years or less.
Waddell & Reed Investment Management Company, investment manager to the Funds
("WRIMCO"), will seek to maximize total return within the short-term asset class
by taking advantage of yield differentials between different instruments,
issuers, and currencies. Short-term instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities; bank
deposits and other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. WRIMCO seeks to maximize
total return within the bond class by adjusting Asset Strategy Fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Strategy Fund may also invest in lower
quality, high-yielding debt securities (commonly referred to as "junk bonds").
The Fund currently intends to limit its investments in these securities to 20%
of its total assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
WRIMCO seeks to take advantage of yield differentials by considering the
purchase or sale of instruments when differentials on spreads between various
grades and maturities of such instruments approach extreme levels relative to
long-term norms.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Securities - General
The main types of securities in which the Funds may invest include common
stock, preferred stock, debt securities and convertible securities, as described
in the Prospectus. These securities may include the following described
securities from time to time.
All of the Funds (other than Municipal Bond Fund) may purchase debt
securities whose principal amount at maturity is dependent upon the performance
of a specified equity security. The issuer of such debt securities, typically
an investment banking firm, is unaffiliated with the issuer of the equity
security to whose performance the debt security is linked. Equity-linked debt
securities differ from ordinary debt securities in that the principal amount
received at maturity is not fixed, but is based on the price of the linked
equity security at the time the debt security matures. The performance of
equity-linked debt securities depends primarily on the performance of the linked
equity security and may also be influenced by interest rate changes. In
addition, although the debt securities are typically adjusted for diluting
events such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash. Such
an issuance could adversely affect the price of the debt security. In addition
to the equity risk relating to the linked equity security, such debt securities
are also subject to credit risk with regard to the issuer of the debt security.
In general, however, such debt securities are less volatile than the equity
securities to which they are linked.
All of the Funds (other than Municipal Bond Fund) may also invest in a type
of convertible preferred stock that pays a cumulative, fixed dividend that is
senior to, and expected to be in excess of, the dividends paid on the common
stock of the issuer. At the mandatory conversion date, the preferred stock is
converted into not more than one share of the issuer's common stock at the "call
price" that was established at the time the preferred stock was issued. If the
price per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock (plus
cash in the amount of any accrued but unpaid dividends). At any time prior to
the mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call price
of the preferred stock in effect on the date of redemption divided by the market
value of the common stock, with such market value typically determined one or
two trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Federal National Mortgage Association ("Fannie Mae"), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation, and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only
by the credit of the instrumentality and not by the Treasury. If the securities
are not backed by the full faith and credit of the United States, the owner of
the securities must look principally to the agency issuing the obligation for
repayment and may not be able to assert a claim against the United States in the
event that the agency or instrumentality does not meet its commitment. Limited-
Term Bond Fund will invest in securities of agencies and instrumentalities only
if WRIMCO is satisfied that the credit risk involved is acceptable.
U.S. Government Securities may include mortgage-backed securities of Ginnie
Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities include
"pass-through" securities and "participation certificates." Another type of
mortgage-backed security is a collateralized mortgage obligation ("CMO"). See
"Mortgage-Backed Securities." Timely payment of principal and interest on
Ginnie Mae pass-throughs is guaranteed by the full faith and credit of the
United States. Freddie Mac and Fannie Mae are both instrumentalities of the
U.S. Government, but their obligations are not backed by the full faith and
credit of the United States. It is possible that the availability and the
marketability (i.e., liquidity) of the securities discussed in this section
could be adversely affected by actions of the U.S. Government to tighten the
availability of its credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury security and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued by
the U.S. Government, a government agency, or a corporation in zero coupon form.
Municipal Bonds
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main kinds of municipal
bonds are "general obligation" bonds and "revenue" bonds. In "general
obligation" bonds, the issuer has pledged its full faith, credit and taxing
power for the payment of principal and interest. "Revenue" bonds are payable
only from specific sources; these may include revenues from a particular
facility or class of facilities or special tax or other revenue source.
A special class of bonds issued by state and local government authorities
and agencies are "industrial development bonds." Only those industrial
development bonds the interest on which is free from Federal income taxation
(although it may be an item of tax preferences for purposes of the alternative
minimum tax) will be considered "municipal bonds." In general, industrial
development bonds are revenue bonds and are issued by or on behalf of public
authorities to obtain funds to finance privately operated facilities. They
generally depend for their credit quality on the credit standing of the company
involved. Such entities and persons should consult with their tax advisers
before investing in Municipal Bond Fund. Municipal Bond Fund does not intend to
invest 25% or more of its assets in industrial development bonds.
Municipal leases and participation interests therein are another specific
type of municipal bond. The factors to be considered in determining whether or
not any rated municipal lease obligations are liquid include (i) the frequency
of trades and quotes for the obligations; (ii) the number of dealers willing to
purchase or sell the security and the number of other potential buyers; (iii)
the willingness of dealers to undertake to make a market in the securities; (iv)
the nature of marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer; (v) the
likelihood that the marketability of the obligation will be maintained through
the time the instrument is held; (vi) the credit quality of the issuer and the
lessee; and (vii) the essentiality to the lessee of the property covered by the
lease. Unrated municipal lease obligations are considered illiquid. These
obligations, which may take the form of a lease, an installment purchase, or a
conditional sale contract, are issued by state and local governments and
authorities to acquire land and a variety of equipment and facilities. The
Funds have not held and do not intend to hold such obligations directly as a
lessor of the property, but may from time to time purchase a participation
interest in a municipal obligation from a bank or other third party. A
participation interest gives a Fund a specified, undivided interest in the
obligation in proportion to its purchased interest in the total amount of the
obligation. Municipal leases frequently have risks distinct from those
associated with general obligation or revenue bonds. State constitutions and
statutes set forth requirements that states or municipalities must meet to incur
debt, including voter referenda, interest rate limits or public sale
requirements. Leases, installment purchases or conditional sale contracts have
evolved as a means for governmental issuers to acquire property and equipment
without being required to meet these constitutional and statutory requirements.
Many leases and contracts include "non-appropriation clauses" providing that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the legislative body
on a yearly or other periodic basis. Non-appropriation clauses free the issuer
from debt issuance limitations. In determining the liquidity of a municipal
lease obligation, WRIMCO will differentiate between direct interests in
municipal leases and municipal lease-backed securities, the latter of which may
take the form of a lease-backed revenue bond, a tax-exempt asset-backed security
or any other investment structure using a municipal lease-purchased agreement as
its base. While the former may present liquidity issues, the latter are based
on a well established method of securing payment of a municipal lease
obligation.
WRIMCO and the Funds rely on the opinion of bond counsel for the issuer in
determining whether obligations are municipal bonds. If a court should hold
that an obligation held by a Fund is not a municipal bond (i.e., that the
interest thereon is taxable), Municipal Bond Fund will sell the obligation as
soon as possible, but it might incur a loss upon such sale.
With respect to ratings of municipal bonds (see Appendix A to this SAI),
now or in the future, Standard & Poor's Ratings Services ("S&P") or Moody's
Investors Service, Inc. ("MIS") may use different rating designations for
municipal bonds depending on their maturities on issuance or other
characteristics. For example, MIS currently rates the top four categories of
"municipal notes" (i.e., municipal bonds generally with a maturity at the time
of issuance ranging from six months to three years) as MIG 1, MIG 2, MIG 3 and
MIG 4. Subject to the particular Fund's goal and investment policies, municipal
bonds purchased by a Fund (other than Asset Strategy Fund) will be considered
investment grade for purposes of the percentage limits in the Prospectus if they
are within the top four rating designations of S&P or MIS for the type of
municipal bond in question. A Fund is not required to dispose of any municipal
bond if its rating falls below the rating required for its purchase, nor does
such a fall in rating affect the amount of unrated municipal bonds that a Fund
may buy.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed by a
mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Mortgage-backed securities are based on different types of mortgages
including those on commercial real estate or residential properties. Some
mortgage-backed securities, such as CMOs, make payments of both principal and
interest at a variety of intervals; others make semiannual interest payments at
a predetermined rate and repay principal at maturity (like a typical bond).
Pass-through securities and participation certificates represent pools of
mortgages that are assembled, with interests sold in the pool; the assembly is
made by an "issuer," such as a mortgage banker, commercial bank or savings and
loan association, which assembles the mortgages in the pool and passes through
payments of principal and interest for a fee payable to it. Payments of
principal and interest by individual mortgagors are passed through to the
holders of the interest in the pool. Monthly or other regular payments on pass-
through securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.
Each Fund (other than Municipal Bond Fund) may purchase mortgage-backed
securities issued by both government and non-government entities such as banks,
mortgage lenders, or other financial institutions. Other types of mortgage-
backed securities will likely be developed in the future, and each Fund may
invest in them if WRIMCO determines they are consistent with the Fund's goal and
investment policies. Municipal Bond Fund may only purchase mortgage-backed
securities issued by government entities.
The value of mortgage-backed securities may change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-government
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues. Mortgage-backed securities are subject to prepayment risk.
Prepayment, which occurs when unscheduled or early payments are made on the
underlying mortgages, may shorten the effective maturities of these securities
and may lower their total returns.
Growth Fund and International Growth Fund do not currently intend to invest
in mortgage-backed securities.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment rates
tend to increase, which tends to reduce prices of IOs and increase prices of
POs. Rising interest rates can have the opposite effect.
Growth Fund, Municipal Bond Fund and International Growth Fund do not
currently intend to invest in stripped securities.
Asset-Backed Securities
Asset-backed securities represent interests in pools of consumer loans
(generally unrelated to mortgage loans) and most often are structured as pass-
through securities. Interest and principal payments ultimately depend upon
payment of the underlying loans by individuals, although the securities may be
supported by letters of credit or other credit enhancements. The value of
asset-backed securities may also depend on the creditworthiness of the servicing
agent for the loan pool, the originator of the loans, or the financial
institution providing the credit enhancement. Each Fund may invest in asset-
backed securities as long as WRIMCO determines that it is consistent with the
Fund's goal and investment policies. Asset Strategy Fund does not currently
intend to invest in non-mortgage asset-backed securities.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries. Floating rate
securities have interest rates that change whenever there is a change in a
designated base rate while variable rate instruments provide for a specified
periodic adjustment in the interest rate. These formulas are designed to result
in a market value for the instrument that approximates its par value. Each Fund
may invest in variable and floating rate instruments as long as WRIMCO
determines that it is consistent with the Fund's goal(s) and investment
policies.
Bank Deposits
Among the debt securities in which the Funds may invest are deposits in
banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits ("Insured Deposits"),
currently to the extent of $100,000 per bank. Bank deposits are not marketable,
and a Fund may invest in them only within the limit mentioned under "Illiquid
Investments" unless such obligations are payable at principal amount plus
accrued interest on demand or within seven days after demand.
Indexed Securities
Each Fund (other than Municipal Bond Fund) may purchase securities whose
prices are indexed to the prices of other securities, securities indices,
currencies, precious metals or other commodities, or other financial indicators,
as long as WRIMCO determines that it is consistent with the Fund's goal and
investment policies. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined by
reference to a specific instrument or statistic. Gold-indexed securities, for
example, typically provide for a maturity value that depends on the price of
gold, resulting in a security whose price tends to rise and fall together with
gold prices. Currency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest rates are
determined by reference to the values of one or more specified foreign
currencies, and may offer higher yields than U.S. dollar-denominated securities
of equivalent issuers. Currency-indexed securities may be positively or
negatively indexed; that is, their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency. Currency-
indexed securities may also have prices that depend on the values of a number of
different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. WRIMCO will use its judgment in determining
whether indexed securities should be treated as short-term instruments, bonds,
stocks, or as a separate asset class for purposes of Asset Strategy Fund's
investment allocations, depending on the individual characteristics of the
securities. Certain indexed securities that are not traded on an established
market may be deemed illiquid.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to a
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and
principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt instruments
that are not in the form of securities may offer less legal protection to a Fund
in the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a Fund relies on WRIMCO's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Investments in direct debt instruments may entail less legal protection for
a Fund. Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating a
Fund to pay additional cash on demand. These commitments may have the effect of
requiring a Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. A Fund will set aside appropriate
liquid assets in a segregated custodial account to cover its potential
obligations under standby financing commitments. Other types of direct debt
instruments, such as loans through direct assignment of a financial
institution's interest with respect to a loan, may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
For purposes of the limitations on the amount of total assets that a Fund
will invest in any one issuer or in issuers within the same industry, a Fund
generally will treat the borrower as the "issuer" of indebtedness held by the
Fund. In the case of loan participations where a bank or other lending
institution serves as financial intermediary between a Fund and the borrower, if
the participation does not shift to the Fund the direct debtor-creditor
relationship with the borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Securities and Currency
International Growth Fund and Asset Strategy Fund may purchase securities
of foreign issuers, subject to the restrictions described in the Prospectus.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities. Total Return Fund and Growth Fund may purchase securities of
foreign issuers only if immediately after any such purchase not more than 10% of
that Fund's assets are foreign securities and only if those foreign securities
(i) are, or are represented by depositary receipts that are, listed or admitted
to trading on a domestic or foreign securities exchange, or in the case of
American depositary receipts, so listed or traded in the U.S. over-the-counter
("OTC") market, or (ii) are issued or guaranteed by any foreign government or
any subdivision, agency or instrumentality thereof.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American depositary receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are more recently developed receipts designed to facilitate the trading
of foreign issuers by U.S. and non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Individual foreign companies may
also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. WRIMCO believes that ability to invest assets abroad might
enable a Fund to take advantage of these differences and strengths where they
are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage). A
Fund may bear a transaction charge in connection with the exchange of currency.
There may be less publicly available information about a foreign company than
about a domestic company. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. Most foreign stock markets have
substantially less volume than the New York Stock Exchange (the "NYSE") and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less government
regulation of stock exchanges, brokers and listed companies than in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. If it should become
necessary, a Fund would normally encounter greater difficulties in commencing a
lawsuit against the issuer of a foreign security than it would against a U.S.
issuer.
Restricted Securities
Asset Strategy Fund may invest in restricted securities subject to its
limitation on investment in illiquid investments. See "Illiquid Investments."
Asset Strategy Fund does not intend to invest in restricted securities if, as a
result of such investment, such securities, together with securities of
companies, including predecessors, with less than three years continuous
operation, represent more than 15% of the Fund's total assets. International
Growth Fund may purchase restricted foreign 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 are subject to legal or contractual restrictions on
resale because they are not registered under the Securities Act of 1933, as
amended (the "1933 Act"). Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the 1933 Act, or in a registered public offering. Where registration is
required, a Fund may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent a Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which a Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments."
Lending Securities
One of the ways in which each of the Funds (except Municipal Bond Fund)
may try to realize income is by lending its portfolio securities. If a Fund
does this, the borrower pays the Fund an amount equal to the dividends or
interest on the securities that the Fund would have received if it had not
loaned the securities. The Fund also receives additional compensation.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). Under the present
Guidelines, the collateral must consist of cash, U.S. Government Securities or
bank letters of credit, at least equal in value to the market value of the
securities loaned on each day that the loan is outstanding. If the market value
of the loaned securities exceeds the value of the collateral, the borrower must
add more collateral so that it at least equals the market value of the
securities loaned. If the market value of the securities decreases, the
borrower is entitled to the return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund. Under the Funds' current securities lending procedures, a Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. A Fund will make loans only under rules of the NYSE, which presently
require the borrower to return the securities to the Fund within five business
days after the Fund gives notice to do so. If a Fund loses its voting rights on
securities loaned, it will have the securities returned to it in time to vote
them if a material event affecting the investment is to be voted on. A Fund may
pay reasonable finder's, administrative and custodian fees in connection with
loans of securities.
No more than 10% of the respective assets of Total Return Fund, Growth Fund
or International Growth Fund, or 30% of the assets of Limited-Term Bond Fund,
may be loaned at any one time. As a fundamental policy, Asset Strategy Fund may
not lend more than 10% of its total assets at one time.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
Each of the Funds, except Municipal Bond Fund, may purchase securities
subject to repurchase agreements subject to its limitation on investment in
illiquid investments. See "Illiquid Investments." A repurchase agreement is an
instrument under which a Fund purchases a security and the seller (normally a
commercial bank or broker-dealer) agrees, at the time of purchase, that it will
repurchase the security at a specified time and price. The amount by which the
resale price is greater than the purchase price reflects an agreed-upon market
interest rate effective for the period of the agreement. The return on the
securities subject to the repurchase agreement may be more or less than the
return on the repurchase agreement.
The majority of the repurchase agreements in which a Fund would engage are
overnight transactions, and the delivery pursuant to the resale typically will
occur within one to five days of the purchase. The primary risk is that a Fund
may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
than that from the repurchase agreement. The Funds' repurchase agreements will
be structured so as to fully collateralize the loans, i.e., the value of the
underlying securities, which will be held by the Fund's custodian bank or by a
third party that qualifies as a custodian under Section 17(f) of the Investment
Company Act of 1940, as amended (the "1940 Act"), is and, during the entire term
of the agreement, will remain at least equal to the value of the loan, including
the accrued interest earned thereon. Repurchase agreements are entered into
only with those entities approved by WRIMCO on the basis of criteria established
by the Board of Directors.
Warrants and Rights
As a fundamental policy, Growth Fund may not invest more than 5% of its
assets (at the time of investment) in warrants (other than those that have been
acquired in units or attached to other securities). Of such 5%, no more than 2%
of its assets (at the time of investment) may be invested in warrants that are
not listed on the NYSE or the American Stock Exchange. Asset Strategy Fund does
not currently intend to purchase warrants, valued at the lower of cost or
market, in excess of 5% of its net assets. Included in that amount, but not to
exceed 2% of its net assets, may be warrants that are not listed on the NYSE or
the American Stock Exchange. Warrants acquired by Asset Strategy Fund in units
or attached to securities are not subject to these restrictions. As a
fundamental policy, International Growth Fund may purchase warrants or rights
to purchase securities ("rights") provided that the Fund will not purchase
warrants or rights if as a result of such purchase more than 5% of its total
assets would consist of warrants, rights or a combination thereof, not including
warrants or rights acquired in units or attached to other securities. Certain
states may impose a lower percentage limit on investments in warrants and
rights.
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
Each of International Growth Fund, Municipal Bond Fund, Limited-Term Bond
Fund and Asset Strategy Fund may purchase any securities in which it may invest
on a when-issued or delayed-delivery basis or sell them on a delayed-delivery
basis. The securities so purchased or sold by a Fund are subject to market
fluctuation; their value may be less or more when delivered than the purchase
price paid or received. For example, delivery to a Fund and payment by a Fund
in the case of a purchase by it, or delivery by a Fund and payment to it in the
case of a sale by a Fund, may take place a month or more after the date of the
transaction. The purchase or sale price is fixed on the transaction date. A
Fund will enter into when-issued or delayed-delivery transactions in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. No interest accrues to a Fund until delivery and
payment is completed. When a Fund makes a commitment to purchase securities on
a when-issued or delayed-delivery basis, it will record the transaction and
thereafter reflect the value of the securities in determining its net asset
value per share. The securities sold by a Fund on a delayed-delivery basis are
also subject to market fluctuation; their value when a Fund delivers them may be
more than the purchase price the Fund receives. When a Fund makes a commitment
to sell securities on a delayed-delivery basis, it will record the transaction
and thereafter value the securities at the sales price in determining the Fund's
net asset value per share.
Ordinarily a Fund purchases securities on a when-issued or delayed-delivery
basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Illiquid Investments
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund
and International Growth Fund may not invest more than 10% of their respective
net assets in illiquid investments. Asset Strategy Fund does not currently
intend to purchase a security if, as a result, more than 15% of its net assets
would be invested in illiquid investments. Investments currently considered to
be illiquid include: (i) repurchase agreements not terminable within seven
days; (ii) securities for which market quotations are not readily available;
(iii) OTC options and their underlying collateral; (iv) bank deposits, unless
they are payable at principal amount plus accrued interest on demand or within
seven days after demand; (v) restricted securities not determined to be liquid
pursuant to guidelines established by the Board of Directors; (vi) securities
involved in swap, cap, collar and floor transactions; (vii) non-government
stripped fixed-rate mortgage-backed securities; and (viii) direct debt
instruments. The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
Securities of Other Investment Companies
In order to comply with regulations of the State of Ohio, for so long as
such regulations are in effect and applicable to the Funds, the Funds will not
invest in securities of other investment companies, except by purchase in the
open market where no commission or profit to a sponsor or dealer results from
the purchase other than the customary broker's commission, or except when the
purchase is part of a plan of merger, consolidation, reorganization or
acquisition.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain options,
futures contracts (sometimes referred to as "futures"), options on futures
contracts, forward currency contracts, swaps, caps, collars, floors and indexed
securities (collectively "Financial Instruments") to attempt to enhance the
Funds' income or yield or to attempt to hedge the Funds' portfolios. A Fund's
ability to use a particular Financial Instrument may be limited by its operating
policies.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge, a Fund takes a
position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge, a Fund takes a position in a Financial Instrument whose price is expected
to move in the same direction as the price of the prospective investment being
hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an
anticipatory hedge transaction, a Fund does not own a corresponding security
and, therefore, the transaction does not relate to a security the Fund owns.
Rather, it relates to a security that the Fund intends to acquire. If a Fund
does not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the transaction
were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which a Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded, the Commodity Futures
Trading Commission (the "CFTC") and various state regulatory authorities. In
addition, a Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with options, futures contracts, options on futures contracts,
forward currency contracts, swaps, caps, collars, floors and other similar or
related techniques. These new opportunities may become available as WRIMCO
develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts, options on futures
contracts, forward currency contracts, swaps, caps, collars, floors or other
techniques are developed. WRIMCO may utilize these opportunities to the extent
that they are consistent with a Fund's goal and permitted by a Fund's investment
limitations and applicable regulatory authorities. The Funds' Prospectus or
this SAI will be supplemented to the extent that new products or techniques
involve materially different risks than those described below or in the
Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Financial Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction (the "counterparty") to
enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash, receivables and short-term debt
securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, set aside cash, U.S. Government Securities or other
liquid, high-grade debt securities in a segregated account with its custodian in
the prescribed amount as determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. As discussed in the Prospectus, certain of the Funds may purchase
and/or write (sell) call and put options on equity and debt securities, foreign
currencies, stock indices and bond indices. The purchase of call options serves
as a long hedge, and the purchase of put options serves as a short hedge.
Writing put or call options can enable a Fund to enhance income or yield by
reason of the premiums paid by the purchasers of such options. However, if the
market price of the security underlying a put option declines to less than the
exercise price of the option, minus the premium received, the Fund would expect
to suffer a loss.
Writing call options can also serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value. 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. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Certain of the Funds may purchase or write
both exchange-traded and OTC options. Exchange markets for options on debt
securities and foreign currencies exist, but these instruments are primarily
traded on the OTC market. Exchange-traded options in the United States are
issued by a clearing organization affiliated with the exchange on which the
option is listed that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between a Fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a Fund purchases an OTC option, it relies on
the counterparty from whom it purchased the option to make or take delivery of
the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the Fund
as well as the loss of any expected benefit of the transaction.
Generally, the OTC foreign currency options used by a Fund are European-
style options. This means that the option is only exercisable immediately prior
to its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although a Fund will enter into OTC options only with major dealers in
unlisted options, there is no assurance that the Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. Each
Fund (other than Asset Strategy Fund) intends to purchase or write only those
exchange-traded options for which there appears to be a liquid secondary market.
In the event of insolvency of the counterparty, the Fund might be unable to
close out an OTC option position at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
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 of the put has the right, prior
to the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exercise
price times the multiplier if the closing level is less than the exercise
price.
Risks of Options on Indices. The risks of investment in options on indices
may be greater than options on securities. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. The Fund can offset some of the risk of writing a call index option
by holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that it has
been assigned until the next business day at the earliest. The time lag between
exercise and notice of assignment poses no risk for the writer of a covered call
on a specific underlying security, such as common stock, because there the
writer's obligation is to deliver the underlying security, not to pay its value
as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
Limitations on the Use of Options. The Funds' use of options on
securities, currencies and indices is governed by the following guidelines,
which can be changed by the Corporation's Board of Directors without a
shareholder vote:
(1) options may be purchased or written only by a Fund (other than Asset
Strategy Fund) when WRIMCO believes that there exists a liquid secondary market
in such options;
(2) Total Return Fund and Growth Fund may only write call options on
domestic stocks that are listed and covered and may only purchase put options on
domestic stocks that are listed and covered and each such option will remain
covered so long as the Fund is obligated under the option (except in the case of
closing transactions);
(3) Total Return Fund, Growth Fund, Limited-Term Bond Fund and Municipal
Bond Fund each may not write call options having aggregate exercise prices
greater than 25% of its net assets;
(4) International Growth Fund may only write covered call options on
securities that are listed on a domestic securities exchange on not more than
10% of its total assets; and
(5) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and Asset Strategy Fund each may purchase a put or call option (including
any straddles or spreads) only if the value of its premium, when aggregated with
the premiums on all other options held by the Fund, does not exceed 5% of the
Fund's total assets.
For so long as required by applicable state securities regulation, Asset
Strategy Fund will only trade OTC options (a) if exchange-traded options are
not available, (b) there is an active OTC market in such options, and (c)
transactions are all through a broker-dealer with a minimum net worth of $20
million. This guideline may be modified by the Corporation's Board of Directors
without a shareholder vote.
For further limitations on certain Funds' use of options, see "Limitations
on the Use of Futures Contracts and Options Thereon."
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge.
Futures strategies also can be used to manage the average duration of a
Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average duration
of a Fund's fixed-income portfolio, the Fund may sell a debt futures contract or
a call option thereon, or purchase a put option on that futures contract. If
WRIMCO wishes to lengthen the average duration of a Fund's fixed-income
portfolio, the Fund may buy a debt futures contract or a call option thereon, or
sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
consisting of cash or U.S. Government Securities in an amount generally equal to
10% or less of the contract value. Margin must also be deposited when writing a
call or put option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Fund at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
Fund may be required by an exchange to increase the level of its initial margin
payment, and initial margin requirements might be increased generally in the
future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
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 an option on a futures
contract 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 options on futures
position due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Fund would continue to be required to make daily
variation margin payments and might be required to maintain the position being
hedged by the future or option or to maintain cash or securities in a segregated
account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationships between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest rate, currency exchange rate or stock market trends by WRIMCO
may still not result in a successful transaction. WRIMCO may be incorrect in
its expectations as to the extent of various interest rate, currency exchange
rate or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in the
price of an index future and movements in the price of the securities that are
the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Limitations on the Use of Futures Contracts and Options Thereon. The
Funds' use of futures is governed by the following guidelines, which can be
changed by the Corporation's Board of Directors without a shareholder vote. For
purposes of these guidelines, options on futures contracts and foreign currency
options traded on a commodities exchange are considered "related options:"
(1) To the extent that Asset Strategy Fund enters into futures contracts
or related options, in each case other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are "in-the-
money") will not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. (In general, a call option on a futures
contract is "in-the-money" if the value of the underlying futures contract
exceeds the strike, i.e., exercise, price of the call; a put option on a futures
contract is "in-the-money" if the value of the underlying futures contract is
exceeded by the strike price of the put.) This guideline does not limit to 5%
the percentage of the Fund's assets that are at risk in futures contracts and
related options transactions;
(2) To the extent that Total Return Fund, Growth Fund, Limited-Term Bond
Fund or Municipal Bond Fund enters into futures contracts or options on futures
contracts, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) will not exceed 5% of the liquidation value of that Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into. (In general, a call option on a
futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the strike, i.e., exercise, price of the call; a put option on
a futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put.) This policy does not
limit to 5% the percentage of a Fund's assets that are at risk in futures
contracts and options on futures contracts;
(3) In instances involving the purchase by Total Return Fund, Growth Fund,
Limited-Term Bond Fund or Municipal Bond Fund of futures contracts or the
writing of related put options, an amount of cash, U.S. Government Securities or
other liquid, high-grade debt instruments, equal to the market value of the
futures positions held (or the Fund's exposure in the case of futures-related
options) less any initial margin deposits thereon held by the Fund's custodian,
will be deposited in a segregated account with the custodian to collateralize
the position and thereby ensure that the use of such futures contracts or
related options is unleveraged;
(4) The value of all futures contracts sold by Total Return Fund, Growth
Fund, Limited-Term Bond Fund or Municipal Bond Fund may not exceed the total
market value of its portfolio;
(5) Futures contracts and related options may not be purchased by Total
Return Fund, Growth Fund, Limited-Term Bond Fund or Municipal Bond Fund if
immediately thereafter more than 30% of its total assets would be so invested;
(6) International Growth Fund will not enter into financial futures
contracts and options thereon.
Asset Strategy Fund will not: (a) sell futures contracts, purchase put
options, or write call options if, as a result, more than 50% of the Fund's
total assets would be hedged with futures and options under normal conditions;
or (b) purchase futures contracts or write put options if, as a result, the
Fund's total obligations upon settlement or exercise of purchased futures
contracts and written put options would exceed 25% of its total assets. These
limitations do not apply to options attached to or acquired or traded together
with their underlying securities, and do not apply to securities that
incorporate features similar to options.
For as long as required by applicable state securities regulations,
(1) the aggregate value of securities underlying put options written by
Asset Strategy Fund, determined as of the date the put options are written, will
not exceed 50% of the Fund's net assets,
(2) Asset Strategy Fund will only buy or sell (a) options on securities,
indices or futures contracts, or (b) futures contracts, in each case that are
offered through the facilities of a national securities association or that are
listed on a national securities or commodities exchange, other than the
permitted OTC options described under "Limitations on the Use of Options" above,
(3) the aggregate premiums paid on all options on securities, indices or
futures contracts purchased by Asset Strategy Fund that are held at any time
will not exceed 20% of the Fund's total net assets, and
(4) the aggregate margin deposits on all futures and options thereon held
at any time by Asset Strategy Fund will not exceed 5% of the Fund's total
assets.
Foreign Currency Hedging Strategies--Special Considerations. Certain of
the Funds may use options and futures contracts on foreign currencies, as
described above, and foreign currency forward contracts, as described below, to
attempt to hedge against movements in the values of the foreign currencies in
which a Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that a Fund owns or intends to acquire
that are attributable to changes in the value of the currency in which it is
denominated. Such hedges do not, however, protect against price movements in
the securities that are attributable to other causes.
The Funds might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Funds could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Asset Strategy Fund, International Growth
Fund, Total Return Fund and Growth Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each of these Funds may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each of these Funds could also hedge the position by
selling another currency expected to perform similarly to the pound sterling,
for example, by entering into a forward contract to sell Deutsche Marks or
European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
These Funds also may use forward currency contracts for "cross-hedging."
Under this strategy, a Fund would increase its exposure to foreign currencies
that WRIMCO believes might rise in value relative to the U.S. dollar, or shift
its exposure to foreign currency fluctuations from one country to another. For
example, if a Fund owned securities denominated in a foreign currency and WRIMCO
believed that currency would decline relative to another currency, it might
enter into a forward contract to sell an appropriate amount of the first foreign
currency, with payment to be made in the second foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or securities in a segregated
account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated into the longer term investment decisions made
with regard to overall diversification strategies. However, WRIMCO believes
that it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of a Fund will be served.
Limitations on the Use of Forward Currency Contracts. Total Return Fund
and Growth Fund may enter into forward currency contracts or maintain a net
exposure to such contracts only if (1) the consummation of the contracts would
not obligate the Fund to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency
or (2) the Fund maintains cash, U.S. Government Securities or liquid, high-grade
debt securities in a segregated account in an amount not less than the value of
its total assets committed to the consummation of the contract and not covered
as provided in (1) above, as marked to market daily.
International Growth Fund may enter into forward currency contracts only
if, thereafter, it does not have more than 15% of the value of its assets
committed to the consummation of all of such contracts. International Growth
Fund will not enter into forward currency contracts or maintain a net exposure
to such contracts where the consummation of the forward contracts would
obligate International Growth Fund to deliver an amount of foreign currency in
excess of the value of the Fund's portfolio securities or other assets
denominated in that currency.
Asset Strategy Fund does not currently intend to invest more than 5% of
its total assets in forward currency contracts.
Total Return Fund and Growth Fund each do not currently intend to invest
more than 10% of their respective total assets in forward currency contracts.
These limitations can be changed by the Corporation's Board of Directors
without a shareholder vote.
Combined Positions. A Fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of its overall position. For example, a
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Turnover. A Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps,
collars and floors, can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long- or short-term interest rates (in the United States or abroad),
foreign currency values, mortgage-backed security values, corporate borrowing
rates, or other factors such as security prices or inflation rates.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps or
floors will be monitored by WRIMCO in accordance with procedures adopted by the
Corporation's Board of Directors. If a default occurs by the other party to
such transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash, U.S. Government Securities or other liquid high-grade debt
obligations having an aggregate net asset value at least equal to the accrued
excess will be maintained in an account by the Fund's custodian that satisfies
the requirements of the 1940 Act. Each Fund will also establish and maintain
such segregated accounts with respect to its total obligations under any swaps
that are not entered into on a net basis and with respect to any caps or floors
that are written by the Fund. WRIMCO and the Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
Investment Restrictions
Certain of the Funds' investment restrictions are described in the
Prospectus and this SAI. The following are fundamental policies and together
with certain restrictions described in the Prospectus cannot be changed without
the approval of the holders of a majority of the outstanding shares of the
affected Fund. As defined in the 1940 Act, this means the lesser of the vote of
(a) 67% of the shares of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy, or (b) more than 50% of
the outstanding shares of the Fund. If a percentage restriction is adhered to
at the time of an investment or transaction, later changes in percentage
resulting from a change in value of portfolio securities or amount of total
assets will not be considered a violation of the restriction.
(i) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not buy real estate, any
nonliquid interests in real estate investment trusts or interests in
real estate limited partnerships; however, each of these Funds may buy
obligations or instruments that it otherwise may buy even though the
issuer invests in real estate or interests in real estate. Asset
Strategy Fund may not invest in real estate limited partnerships or
purchase or sell real estate unless acquired as a result of ownership
of securities (but this shall not prevent this Fund from purchasing and
selling securities issued by companies or other entities or investment
vehicles that deal in real estate or interests therein, nor shall this
prevent this Fund from purchasing interests in pools of real estate
mortgage loans).
(ii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not acquire shares of an
investment company that issues redeemable securities. Total Return
Fund, Growth Fund and International Growth Fund may buy shares of an
investment company that does not issue redeemable securities if the
Fund does so in a regular transaction in the open market and in
compliance with the requirements of the 1940 Act. Notwithstanding the
foregoing, each of these Funds may also acquire investment company
shares as part of a merger, consolidation or other reorganization.
(iii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not lend money or other assets,
other than through certain limited types of loans; however, subject to
the restrictions stated in this SAI and in the Prospectus regarding the
types of securities each of these Funds may buy, each of these Funds
may buy debt securities that have been sold to the public and other
obligations customarily acquired by institutional investors and, except
Municipal Bond Fund, may lend its portfolio securities and enter into
repurchase agreements. Asset Strategy Fund may not make loans, except
(a) by lending portfolio securities provided that no securities loan
will be made if, as a result thereof, more than 10% of this Fund's
total assets (taken at current value) would be lent to another party;
(b) through the purchase of a portion of an issue of debt securities in
accordance with its investment objective, policies, and limitations;
and (c) by engaging in repurchase agreements with respect to portfolio
securities.
(iv) No Fund may invest for the purpose of exercising control or management
of another issuer.
(v) No Fund may buy or continue to hold securities of an issuer if the
directors and officers of the Corporation and of WRIMCO (each owning
beneficially 0.5% of the securities of such issuer) own in the
aggregate more than 5% of that issuer's securities.
(vi) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not sell securities short, buy
securities on margin or engage in arbitrage transactions; however, each
of these Funds may make margin deposits in connection with its use of
any financial instrument permitted by its policies. Also, as
applicable, each of these Funds may enter into escrow and collateral
arrangements in connection with options, futures contracts and other
financial instruments. Asset Strategy Fund may not sell securities
short, provided that transactions in futures contracts, options and
other financial instruments are not deemed to constitute short sales.
Asset Strategy Fund may not purchase securities on margin, except that
this Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that this Fund may make initial
and variation margin payments in connection with transactions in
futures contracts, options and other financial instruments.
(vii) No Fund may engage in the underwriting of securities of other issuers,
except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under
Federal securities laws.
(viii) No Fund may invest in a security if, as a result, it would own more
than 10% of the outstanding voting securities of an issuer, or if more
than 5% of the Fund's total assets would be invested in securities of
that issuer, provided that U.S. Government Securities are not subject
to this limitation and up to 25% of the Fund's total assets may be
invested without regard to these restrictions.
(ix) No Fund may buy a security if, as a result, 25% or more of the Fund's
total assets would then be invested in securities of issuers having
their principal business activities in the same industry, except for
municipal bonds (other than industrial development bonds) and U.S.
Government Securities.
(x) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not purchase warrants, except
Growth Fund and International Growth Fund may purchase warrants to the
extent described above. See "Warrants and Rights."
(xi) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not buy or sell commodities or
commodity contracts except to the extent that instruments in which
these Funds may invest for hedging, income enhancing or other purposes
as such purposes may be permitted by the CFTC and the Fund's policies,
are considered to be commodities or commodity contracts. Asset
Strategy Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities (but this shall not
prevent this Fund from purchasing and selling currencies, futures
contracts, options, forward currency contracts or other financial
instruments).
(xii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not issue senior securities.
Asset Strategy Fund may not issue bonds or any other class of
securities preferred over shares of the Fund in respect of the Fund's
assets or earnings, provided that this Fund may issue additional series
and classes of shares in accordance with its Articles of Incorporation.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not borrow money, except that
these Funds may borrow money (and pledge assets in connection
therewith) from banks for temporary, extraordinary or emergency
purposes but only up to 5% of their respective assets. Asset Strategy
Fund may not borrow money, except that this Fund may borrow money for
emergency or extraordinary purposes (not for leveraging or investment)
in an amount not exceeding 33 1/3% of the value of its total assets
(less liabilities other than borrowings). Any borrowings that come to
exceed 33 1/3% of the value of Asset Strategy Fund's total assets by
reason of a decline in net assets will be reduced within three days to
the extent necessary to comply with the 33 1/3% limitation. For
purposes of this limitation, "three days" means three days, exclusive
of Sundays and holidays.
(xiii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not invest in interests in oil,
gas or mineral leases or mineral development programs, including oil
and gas limited partnerships.
For purposes of applying restriction (viii) there may be a question as to
who is the "issuer" of municipal bonds. For example, municipal bonds may be
created by a particular government but be backed only by the assets and revenues
of a subdivision of that government such as an agency, instrumentality,
authority or other subdivision. In such case, such subdivision would be
considered the "issuer" for the purposes of the 5% restriction. In the case of
industrial development bonds, the nongovernmental user of facilities financed by
them is also considered as a separate "issuer." This restriction does not apply
to U.S. Government Securities. The method of determining who is an "issuer" may
be changed without shareholder vote. In applying this 5% restriction, the same
standards apply as set forth above for determining who is an "issuer;" however,
it also considers for the purpose of this 5% restriction that a guarantee by a
government or other entity of a municipal bond is a separate security that would
be given a value and included in the 5% restriction if the value of all
municipal bonds created by the government or entity and owned by a Fund should
exceed 10% of the value of its total assets.
The following investment limitations of Asset Strategy Fund are not
fundamental and may be changed by the Board of Directors without shareholder
approval:
(1) Asset Strategy Fund may borrow money only from a bank. Asset Strategy
Fund will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding.
(2) Asset Strategy Fund does not currently intend to purchase any security
if, as a result, more than 15% of its net assets would be invested in illiquid
investments.
(3) Asset Strategy Fund does not currently intend to lend assets other
than securities to other parties, except by acquiring loans, loan
participations, or other forms of direct debt instruments. (This limitation
does not apply to purchases of debt securities or to repurchase agreements.)
(4) Asset Strategy Fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid and if, as a result
of such purchase, the Fund does not have more than 10% of its total assets
invested in such securities, or (b) purchase or retain securities issued by
other open-end investment companies. Limitations (a) and (b) do not apply to
securities received as dividends, through offers of exchange, or as a result of
a reorganization, consolidation, or merger. However, in the event that the Fund
purchases or retains securities issued by any other open-end investment company,
WRIMCO will waive its advisory fee on that portion of the Fund's assets invested
in such securities and the Fund will only purchase securities of no-load, open-
end investment companies.
(5) Asset Strategy Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivision thereof) if, as a result, more
than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation. This restriction does not apply to any obligation
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
or to CMOs, other mortgage-related securities, asset-backed securities or
indexed securities.
(6) Asset Strategy Fund does not currently intend to purchase warrants,
valued at the lower of cost or market, in excess of 5% of its net assets.
Included in that amount, but not to exceed 2% of its net assets, may be warrants
that are not listed on the New York Stock Exchange or the American Stock
Exchange. Warrants acquired by Asset Strategy Fund in units or attached to
securities are not subject to these restrictions.
(7) Asset Strategy Fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
(8) Asset Strategy Fund does not currently intend to invest in non-
mortgage asset-backed securities.
For the Funds' limitations on futures and options transactions, see the
sections entitled "Limitations on the Use of Futures Contracts and Options
Thereon" and "Limitations on the Use of Options" under "Options, Futures and
Other Strategies."
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Fund's turnover rate may vary
greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for the fiscal years ended March 31, 1996
and 1995 for each of the Funds then in existence were as follows:
1996 1995
----- ----
Total Return Fund 16.78%16.60%
Growth Fund 31.84 56.30%
Limited-Term Bond Fund 22.08 29.20%
Municipal Bond Fund 42.02 56.92%
International Growth Fund* 88.55 13.33%
Asset Strategy Fund** 75.02
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**Asset Strategy Fund began operations on April 20, 1995.
A high turnover rate will increase transaction costs and commission costs
that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Funds and provide investment advice to the
Funds. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. (the
"Distributor") is the Corporation's principal underwriter and distributor.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to enter
into a separate agreement for transfer agency services (the "Shareholder
Servicing Agreement") and a separate agreement for accounting services (the
"Accounting Services Agreement") with the Corporation. The Management Agreement
contains detailed provisions as to the matters to be considered by the
Corporation's Board of Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992, when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for United Asset Strategy
Fund, Inc. since it commenced operations in March 1995. Waddell & Reed, Inc.
serves as principal underwriter for the Funds, the investment companies in the
United Group of Mutual Funds and serves as distributor for TMK/United Funds,
Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
the Distributor, the Agent performs shareholder servicing functions, including
the maintenance of shareholder accounts, the issuance, transfer and redemption
of shares, distribution of dividends and payment of redemptions, the furnishing
of related information to the Corporation and handling of shareholder inquiries.
A new Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides the Corporation with bookkeeping
and accounting services and assistance, including maintenance of the
Corporation's records, pricing of the Corporation's shares, and preparation of
prospectuses for existing shareholders, proxy statements and certain reports. A
new Accounting Services Agreement, or amendments to an existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Payments for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus. The management
fees paid to WRIMCO during the fiscal years ended March 31, 1996, 1995 and 1994
for each of the Funds then in existence were as follows:
1996 1995 1994
---- ----- ----
Total Return Fund $1,051,336 $599,703 $255,556
Growth Fund 1,180,192 537,667 185,715
Limited-Term Bond Fund 87,085 64,948 52,456
Municipal Bond Fund 169,713 140,752 95,328
International Growth Fund* 126,515 70,373 62,024
Asset Strategy Fund** 52,588
*International Growth Fund (formerly Global Income Fund) changed its name,
investment objective and management fee effective April 20, 1995.
**For the period from 4/20/95, the date of initial public offering, to
3/31/96.
For purposes of calculating the daily fee the Corporation does not include
money owed to it by the Distributor for shares which it has sold but not yet
paid to the Corporation. The Corporation accrues and pays this fee daily.
The Management Agreement requires WRIMCO to reduce or refund to a Fund the
amount of those of the Fund's operating and management expenses which exceed the
lowest of the expense limitations of any state in which the Fund's shares are
qualified for sale.
Under the Shareholder Servicing Agreement, with respect to Class B
shares, each Fund pays the Agent a monthly fee of $1.3125 ($1.0208 prior to
April 1, 1996) for each shareholder account that was in existence at any time
during the prior month, plus $0.30 for each account on which a dividend or
distribution, of cash or shares, had a record date in that month. For Class Y
shares, each Fund pays the Agent a monthly fee equal to one-twelfth of .15 of 1%
of the average daily net assets of that class for the preceding month. Each
Fund also pays certain out-of-pocket expenses of the Agent, including long
distance telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and costs of legal and special
services not provided by the Distributor, WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent during the fiscal years ended March 31, 1996,
1995 and 1994 for each of the Funds then in existence were as follows:
1996 1995 1994
---- ----- ----
Total Return Fund $40,833 $30,833 $20,000
Growth Fund 40,000 28,333 13,333
Limited-Term Bond Fund 10,000 10,000 4,167
Municipal Bond Fund 20,000 12,500 10,833
International Growth Fund* 10,000 10,000 5,833
Asset Strategy Fund 3,333
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**For the period 4-20-96, the date of initial public offering, to 3-31-96.
Because the Corporation pays a management fee for investment supervision
and an accounting services fee for accounting services as discussed above,
WRIMCO and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Corporation under the Shareholder Servicing
Agreement are described above. The Distributor and its affiliates pay the
Corporation's Directors and officers who are affiliated with the Distributor and
its affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
The Corporation pays all of its other expenses. These include, for each
Fund, the costs of materials sent to shareholders, audit and outside legal fees,
taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Distribution Arrangement
The Distributor acts as principal underwriter and distributor of the
Corporation's shares pursuant to an underwriting agreement (the "Underwriting
Agreement"). The Underwriting Agreement requires the Distributor to use its
best efforts to sell the shares of the Corporation but is not exclusive, and
permits and recognizes that the Distributor also distributes shares of other
investment companies and other securities. Shares are sold on a continuous
basis.
Under a Distribution and Service Plan for the Class B shares (the "Class
B Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act,
the Corporation, with respect to each Fund, pays the Distributor daily a
distribution fee not to exceed, on an annual basis, 0.75% of the particular
Fund's Class B net asset value and a service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class B net asset value. Under a
Distribution and Service Plan for Class Y shares (the "Class Y Plan") adopted by
the Corporation pursuant to Rule 12b-1, with respect to each Fund, the
Corporation pays the Distributor daily a distribution and/or service fee not to
exceed, on an annual basis, 0.25% of the particular Fund's Class Y net asset
value.
The Distributor offers the Corporation's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
contemplated, to make distribution of shares also through other broker-dealers.
In distributing shares through its sales force, the Distributor will pay
commissions and incentives to the sales force at or about the time of sale and
will incur other expenses including for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Corporation's shares.
The Class B Plan, the Class Y Plan and the Underwriting Agreement contemplate
that the Distributor may be compensated for these distribution efforts through
the distribution fee. The sales force may be paid continuing compensation based
on the value of the shares held by shareholders to whom the member of the sales
force is assigned to provide personal services, and the Distributor or its
subsidiary, Waddell & Reed Services Company, may also provide services to
shareholders through telephonic means and written communications. For the
fiscal year ended March 31, 1996, the Corporation paid (or accrued) the
following amounts to the Distributor as distribution fees and service fees under
the Class B Plan for each of the Funds: Total Return Fund - $1,114,538 and
$368,860; Growth Fund - $1,097,047 and $361,905; Limited-Term Bond Fund -
$117,456 and $33,446; Municipal Bond Fund - $227,879 and $70,380; International
Growth Fund (formerly Global Income Fund) - $118,422 and $26,938; and Asset
Strategy Fund - $49,313 and $17,336. For the fiscal year ended March 31, 1996,
the Corporation paid (or accrued) the following amounts to the Distributor as
distribution fees and service fees under the Class Y Plan for each of the Funds:
Total Return Fund - $0; Growth Fund - $0; Limited-Term Bond Fund - $0; Municipal
Bond Fund - $0; International Growth Fund - $0; and Asset Strategy Fund - $0.
The distribution fees were paid to compensate the Distributor for its expenses
relating to sales force compensation, providing prospectuses and sales
literature to prospective investors, advertising, sales processing, field office
expenses and home office sales management in connection with the distribution of
Class B and/or Class Y shares of a Fund. The service fees were paid to
compensate the Distributor for providing personal services to the particular
Fund's Class B and/or Class Y shareholders and for the maintenance of Class B
and/or Class Y accounts.
The Class B Plan, the Class Y Plan and the Underwriting Agreement were
approved by the Corporation's Board of Directors, including the Directors who
are not interested persons of the Corporation or of the Distributor and who have
no direct or indirect financial interest in the operations of the Plan or any
agreement referred to in the Plan (hereafter the "Plan Directors"). Each Plan
was also approved as to each Fund by the Distributor as the sole shareholder of
the affected shares of each of the Funds, and classes thereof, at the time.
Among other things, the Plan for each class provides that (i) the
Distributor will submit to the Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendments thereto are approved by the Directors including the Plan Directors
acting in person at a meeting called for that purpose, (iii) payments by the
Corporation under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of that
class of each affected Fund, and (iv) while the Plan remains in effect, the
selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
For the Corporation's fiscal year ended March 31, 1996, the Distributor
earned deferred sales charges from each of the Funds with respect to Class B
shares then in existence as follows: Total Return Fund - $263,733; Growth Fund
- - $225,438; Limited-Term Bond Fund - $44,790; Municipal Bond Fund - $103,961;
International Growth Fund (formerly Global Income Fund) - $29,928; and Asset
Strategy Fund - $6,473.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., Kansas City, Missouri. In
general, the custodian is responsible for holding each Fund's cash and
securities. The Funds may place and maintain foreign securities and cash with a
foreign custodian in accordance with Rule 17f-5 of the 1940 Act. Price
Waterhouse LLP, Kansas City, Missouri, the Funds' independent accountants,
audits the Corporation's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value of
the assets of that class, less the liabilities of that class, divided by the
total number of shares outstanding of that class.
The offering price of a Class B or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after the
Distributor receives and accepts your order at its principal business office at
the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
The Distributor need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value per share is ordinarily computed once on each day that
the NYSE is open for trading as of the later of the close of the regular session
of the NYSE or the close of the regular session of any domestic securities or
commodities exchange on which an option or future held by a Fund is traded. The
NYSE annually announces the days on which it will not be open for trading. The
most recent announcement indicates that the NYSE will not be open on the
following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is
possible that the NYSE may close on other days. The net asset value changes
every business day, since the value of the assets and the number of shares
outstanding changes every business day.
The securities in the portfolio of each Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations system), which provides information on bid and asked prices
quoted by major dealers in such stocks. Bonds, other than convertible bonds,
are generally valued using a pricing system provided by a major dealer in bonds.
Convertible bonds are valued using this pricing system only on days when there
is no sale reported. Short-term debt securities are valued at amortized cost,
which approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
by or under the direction of the Board of Directors.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of a Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period, the
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of a Fund conducted on a spot (i.e., cash) basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
Options and futures contracts purchased and held by a Fund are valued at
the last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for option trading
on national securities exchanges is 4:10 P.M. Eastern time and the close of the
regular session for commodities exchanges is 4:15 P.M. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by a Fund will be either the closing price
of that contract or the bid price. Conversely, the value of a futures contract
sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium received
is included in the Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the put or
call. If the call a Fund wrote is exercised, the proceeds received on the sale
of the related investment are increased by the amount of the premium the Fund
received. If a Fund exercised a call it purchased, the amount paid to purchase
the related investment is increased by the amount of the premium paid. If a put
written by a Fund is exercised, the amount that the Fund pays to purchase the
related investment is decreased by the amount of the premium it received. If a
Fund exercises a put it purchased, the amount the Fund receives from the sale of
the related investment is reduced by the amount of the premium it paid. If a
put or call written by a Fund expires, it has a gain in the amount of the
premium; if a Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium was more or less than the cost of
the closing transaction.
Minimum Initial and Subsequent Investments
For Class B shares, initial investments must be at least $1,000 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to exchanges of shares from one Fund to another Fund. A $50 minimum
initial investment pertains to purchases for certain retirement plan accounts
and to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, the Distributor, their affiliates or certain
retirement plan accounts. Except with respect to certain exchanges and
automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount.
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $1 million. There is no initial investment
minimum for other Class Y investors.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments by redeeming Class B shares on a regular basis
through the Flexible Withdrawal Service (the "Service"). To qualify for the
Service, you must have invested at least $10,000 in Class B shares which you
still own of any of the Funds, or Class B shares of United Cash Management,
Inc., a fund in the United Group of Mutual Funds, or you must own Class B shares
having a value of at least $10,000.
The maximum amount of the withdrawal for monthly, quarterly, semiannual and
annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50.
To start the Service, you must fill out a form (available from the
Distributor), advising the Distributor how you want your shares redeemed to make
the payments. You have three choices within the above stated maximums:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to a
percentage of the value of the shares in your account; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares ordinarily are redeemed on the 20th day of the month in which the
payment is to be made (or on the prior business day if the 20th is not a
business day). Payments are usually made within five days of the redemption.
Retirement Plan Accounts may be subject to a fee imposed by the plan
custodian for use of their service.
The dividends and distributions on shares of a Fund that you have made
available for the Service are paid in additional Class B shares of that Fund.
All payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of Class B shares you own will decrease. When all of
the shares in your account are redeemed, you will not receive any further
payments. Thus, the payments are not an annuity or income or return on your
investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed. You can change to any of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. Subject to the deferred sales
charge, you can at any time redeem part or all of the shares of a Fund in your
account; if you redeem all of the shares, the Service is terminated. The Fund
can also terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchange Privilege
Class B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for Class B
shares of another Fund of the Corporation, or for Class B shares of United Cash
Management, Inc., without charge.
The redemption of a Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class A shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of a Fund. The shares of United Cash Management, Inc. which you
designate must be worth at least $100, which may be allocated among different
Funds so long as each Fund receives a value of at least $25. Minimum initial
investment and minimum balance requirements apply to such service. These
exchange and other rights can in most instances be eliminated or modified at any
time, upon notice in certain circumstances, and any related request may not be
accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
Fund of the Corporation.
General Exchange Information
The exchange will be made at the net asset values next determined after
receipt of your written request in good order by the Corporation. When you
exchange shares, the total shares you receive will have the same aggregate net
asset value as the total shares you exchange.
These exchange rights may be eliminated or modified at any time by the
Corporation, upon notice in certain circumstances.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers prototype documents for the following
retirement plans. All of these plans involve investment in shares of one or
more of the Funds.
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. The annual maximum is $2,250 if an investor's spouse has
earned income of $250 or less in a taxable year. If an investor's spouse has at
least $2,000 of earned income in a taxable year, the annual maximum is $4,000
($2,000 for each spouse). The contributions are deductible unless the investor
(or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participate, their adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Internal Revenue
Code of 1986, as amended (the "Code"), but not an IRA) other than certain
periodic payments, required minimum distributions and other specified
distributions. In a direct rollover, the eligible rollover distribution is paid
directly to the IRA, not to the investor. If, instead, an investor receives
payment of an eligible rollover distribution, all or a portion of that
distribution generally may be rolled over to an IRA within 60 days after receipt
of the distribution. Because mandatory Federal income tax withholding applies
to any eligible rollover distribution which is not paid in a direct rollover,
investors should consult their tax advisers or pension consultants as to the
applicable tax rules. If you already have an IRA, you may have the assets in
that IRA transferred directly to an IRA offered by Waddell & Reed, Inc.
Simplified Employee Pension (SEP) plans and Salary Reduction SEP (SARSEP)
plans. Employers can make contributions to SEP-IRAs established for employees.
An employer may contribute up to 15% of compensation, not to exceed $22,500, per
year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from the Distributor. These plans may involve complex tax questions
as to premature distributions and other matters. Investors should consult their
tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures and deferred
sales charges. Redemption payments are made within seven days unless delayed
because of emergency conditions determined by the SEC, when the NYSE is closed
other than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions redemptions may
be made in portfolio securities. Payment for redemptions of shares of the
Corporation may be made in portfolio securities when the Corporation's Board of
Directors determines that conditions exist making cash payments undesirable.
Redemptions made in securities will be made only in readily marketable
securities and the shareholder will incur commission or other transaction
charges in order to convert these securities into cash. Securities used for
payment of redemptions are valued at the value used in figuring net asset value.
The Corporation, however, has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder.
As stated in the Prospectus for Class B shares, a deferred sales charge
is inapplicable in a variety of circumstances. The deferred sales charge is the
subject of an effective order of exemption issued by the staff of the SEC. For
purposes of determining application of the deferred sales charge, "employees"
include retired employees and "directors" includes retired directors. A retired
employee is an individual separated from service from the Distributor or any of
its affiliated companies with a vested interest in any employee benefit plan
sponsored by the Distributor or any of its affiliated companies. "Account
representatives" includes retired account representatives. A "retired account
representative" is any account representative who was, at the time of separation
from service from the Distributor, a Senior Account Representative. A custodian
under the Uniform Gifts (or Transfers) to Minors Act purchasing for the child of
any employee or account representative may redeem shares without a deferred
sales charge whether or not the custodian is an eligible purchaser.
Reinvestment Privilege
The Prospectus for Class B shares discusses the reinvestment privilege for
Class B shares under which you may reinvest in any one or more of the Funds all
or part of any amount of Class B shares you redeemed and have the corresponding
amount of the deferred sales charge, if any, which you paid restored to your
account by adding the amount of that charge to the amount you are reinvesting.
If Class B shares of a Fund are then being offered, you can put all or part of
your redemption payment back into the Class B shares of that Fund at the net
asset value next determined after you have returned the amount. Your written
request to do this must be received within 30 days after your redemption. You
can do this only once as to Class B shares of that Fund. For purposes of
determining future deferred sales charges, the reinvestment will be treated as a
new investment. You do not use up this privilege by redeeming Class B shares to
invest the proceeds at net asset value in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer of the Corporation is given below. Each of the persons
listed through and including Mr. Wise is a member of the Corporation's Board of
Directors. The other persons are officers but not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes each
of the registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. Each of the Corporation's
Directors is also a Director of each of the funds in the Fund Complex and each
of the Corporation's officers is also an officer of one or more of the funds in
the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corporation; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Professor of Marketing,
College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Chairman, Gilliland & Hayes, P.A., a
law firm; formerly, President, Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate management and
investment; formerly, Director of The Vendo Company, a manufacturer and
distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor for
Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
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 eight 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 one other fund in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed,
Inc.
W. Patrick Sterner
Vice President of the Corporation and one other fund in the Fund Complex;
Vice President of WRIMCO; Vice President of Waddell & Reed Asset Management
Company; formerly, Chief Investment Officer of The Merchants Bank.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Senior Vice President of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
James Wineland
Vice President of the Corporation and three other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed,
Inc.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Corporation's Directors may be
deemed to be "interested persons" (as defined in the 1940 Act) of the
Distributor or of WRIMCO and, as such, also of the Corporation. The Directors
who may be deemed to be "interested persons" are indicated as such by an
asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a Director may elect after resignation from the Board
of Directors provided the Director has attained the age of 75 and has served as
a Director of the Corporation for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no authority
or responsibility with respect to management of the Corporation. Mr. Leslie S.
Wright retired as a Director of the Corporation and of each of the funds in the
Fund Complex effective April 1, 1996, and has elected a position as Director
Emeritus. During the Corporation's fiscal year ended March 31, 1996, Mr. Wright
received total compensation for his service as a Director of $42,000 from the
Fund Complex and aggregate compensation from the Corporation of $955.
As of April 1, 1996, the Corporation, the funds in the United Group and
TMK/United Funds, Inc. pay to each Director a total of $44,000 per year, plus
$1,000 for each meeting of the Board of Directors attended (prior to April 1,
1996, the Corporation, the funds in the United Group and TMK/United Funds, Inc.
paid to each Director a fee of $40,000 per year, plus $1,000 for each meeting of
the Board of Directors attended) and $500 for each committee meeting attended
which is not in conjunction with a Board of Directors meeting, other than
Directors who are affiliates of Waddell & Reed, Inc. The fees to the Directors
who receive them are divided among the Corporation, the funds in the United
Group and TMK/United Funds, Inc. based on their relative size. During the
Corporation's fiscal year ended March 31, 1996, the Corporation's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 1,050 0 46,000
Dodds I. Buchanan 1,050 0 46,000
Jay B. Dillingham 1,050 0 46,000
Linda Graves 588 0 24,000
John F. Hayes 1,050 0 46,000
Glendon E. Johnson 1,050 0 46,000
William T. Morgan 1,050 0 46,000
Doyle Patterson 1,050 0 46,000
Eleanor B. Schwartz 588 0 24,000
Frederick Vogel III 1,050 0 46,000
Paul S. Wise 1,050 0 46,000
The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of May 31, 1996, all of the Corporation's Directors and officers as a
group owned less than 1% of the outstanding shares of the Corporation. As of
such date, no person owned of record or was known by the Corporation to own
beneficially 5% or more of the Corporation's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are two (three, in the case of certain Funds) sources for the
payments a Fund makes to you as a shareholder of a class of shares of a Fund,
other than payments when you redeem your shares. The first source is a Fund's
net investment income, which is derived from the dividends, interest and earned
discount on the securities it holds, less expenses (which will vary by class).
The second source is realized capital gains, which are derived from the proceeds
received from the sale of securities at a price higher than a Fund's tax basis
(usually cost) in such securities; these gains can be either long-term or short-
term, depending on how long a Fund has owned the securities before it sells
them. The third source (in the case of Total Return Fund, Growth Fund,
International Growth Fund and Asset Strategy Fund)is net realized gains from
foreign currency transactions. The payments made to shareholders from net
investment income, net short-term capital gains, and net realized gains from
certain foreign currency transactions are called dividends. Payments, if any,
from long-term capital gains are called distributions.
Each Fund pays distributions only if it has net realized capital gains (the
excess of net long-term capital gains over net short-term capital losses). It
may or may not have such gains, depending on whether securities are sold and at
what price. If a Fund has net realized capital gains, it will pay distributions
once each year, in the latter part of the fourth calendar quarter. Even if a
Fund has net capital gains for a year, it does not pay the gains out if it has
applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
a Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the payment date for
the dividend or distribution, although this could be changed by the Board of
Directors.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund (each Fund being treated as a separate
entity for these purposes) must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting generally
of taxable net investment income, net short-term capital gains and, for certain
Funds, net gains from certain foreign currency transactions) plus, in the case
of Municipal Bond Fund, its net interest income excludable from gross income
under Section 103(a) of the Code ("Distribution Requirement"), and must meet
several additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must derive
less than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less than
three months -- options or futures (other than those on foreign currencies), or
foreign currencies (or options, futures or forward contracts thereon) that are
not directly related to the Fund's principal business of investing in securities
(or options and futures with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government Securities, securities of other RICs and other securities that are
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government Securities or
the securities of other RICs) of any one issuer.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in any of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gains net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to make sufficient distributions each
year to avoid imposition of the Excise Tax. The Code permits the Fund to defer
into the next calendar year net capital losses incurred between each November 1
and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
International Growth Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, that Fund will be eligible to,
and may, file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by it. Pursuant
to any such election, International Growth Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by that Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
International Growth Fund will report to its shareholders shortly after each
taxable year their respective shares of that Fund's income from sources within,
and taxes paid to, foreign countries and U.S. possessions if it makes this
election.
Each of International Growth Fund, Asset Strategy Fund, Total Return Fund
and Growth Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) -- which
would have to be distributed to satisfy the Distribution Requirement and to
avoid imposition of the Excise Tax -- even if those earnings and gain were not
received by the Fund. In most instances it will be very difficult, if not
impossible, to make this election because of certain requirements thereof.
The "Tax Simplification and Technical Corrections Bill of 1993," passed in
May 1994 by the House of Representatives, would substantially modify the
taxation of U.S. shareholders of foreign corporations, including eliminating the
provision described above dealing with PFICs and replacing them (and other
provisions) with a regulatory scheme involving entities called "passive foreign
corporations." Three similar bills were passed by Congress in 1991 and 1992 and
vetoed. It is unclear at this time whether, and in what form, the proposed
modifications may be enacted into law.
Proposed regulations have been published pursuant to which open-end RICs,
such as the Funds, would be entitled to elect to "mark-to-market" their stock in
certain PFICs. "Marking-to-market," in this context, means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of such a PFIC's stock over the adjusted basis in that stock (including
mark-to-market gain for each prior year for which an election was in effect).
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options, Futures and Currencies
The use of hedging and option income strategies, such as writing
(selling) and purchasing options and futures and entering into forward
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses a Fund realizes
in connection therewith. Income from foreign currencies (except certain gains
therefrom that may be excluded by future regulations), and income from
transactions in options, futures and forward contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However, income
from the disposition of options, futures and forward contracts (other than those
on foreign currencies) will be subject to the Short-Short Limitation if they are
held for less than three months. Income from the disposition of foreign
currencies, and options, futures and forward contracts thereon, that are not
directly related to a Fund's principal business of investing in securities (or
options and futures with respect to securities) also will be subject to the
Short-Short Limitation if they are held for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of each Fund's hedging transactions. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures and forward contracts beyond the time
when it otherwise would be advantageous to do so, in order for the Fund to
qualify or continue to qualify as a RIC.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gains or losses based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by a Fund lapses without being exercised,
the premium it received also will be a short-term capital gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. A Fund will not write so many options
that it could fail to qualify or continue to qualify as a RIC.
Certain options and futures in which the Funds may invest will be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of its
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance are
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Funds are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
original issue discount. As the holder of those securities, a Fund must include
in its income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Similarly, a Fund must include in its gross income
securities it receives as "interest" on payment-in-kind securities. Because
each Fund annually must distribute substantially all of its investment company
taxable income, including any original issue discount and other non-cash income,
in order to satisfy the Distribution Requirement and to avoid imposition of the
Excise Tax, a Fund may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from a Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. A Fund may realize
capital gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gains. In addition, any
such gains may be realized on the disposition of securities held for less than
three months. Because of the Short-Short Limitation, any such gains would
reduce a Fund's ability to sell other securities, or certain options, futures or
forward contracts, held for less than three months that it might wish to sell in
the ordinary course of its portfolio management.
Municipal Bond Fund
The aggregate dividends excludable from the gross income of a Municipal
Bond Fund shareholder may not exceed the Fund's net tax-exempt income. If the
Fund's shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends received
on those shares. Tax-exempt interest attributable to certain private activity
bonds ("PABs") (including a proportionate part of the exempt-interest dividends
paid by the Fund attributable thereto) is subject to the alternative minimum
tax. Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to that tax without regard to whether the Fund's tax-exempt
interest was attributable to those PABs.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds should consult their tax advisers before purchasing shares of the Fund
because, for users of certain of these facilities, the interest on such bonds is
not exempt from Federal income tax. For these purposes, the term "substantial
user" is defined generally to include a "non-exempt person" who regularly uses
in trade or business a part of a facility financed from the proceeds of PABs or
industrial development bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the income
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of its earnings and profits. Moreover, if the Fund realizes capital
gains as a result of market transactions, any distribution of those gains will
be taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions, and property and casualty
insurance companies. A shareholder falling into any such category should
consult its tax adviser concerning its investment in shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange for the purchase and sale of securities for the portfolio of each
Fund. With respect to Limited-Term Bond Fund and Municipal Bond Fund, many
purchases are made directly from issuers or from underwriters, dealers or banks.
Purchases from underwriters include a commission or concession paid by the
issuer to the underwriter. Purchases from dealers will include the spread
between the bid and the asked prices. Otherwise, transactions in securities
other than those for which an exchange is the primary market are generally done
with dealers acting as principals or market makers. Brokerage commissions are
paid primarily for effecting transactions in securities traded on an exchange
and otherwise only if it appears likely that a better price or execution can be
obtained.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on relevant
factors, will implement the policy of the Fund to achieve "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent with
the interests and policies of the Fund. Subject to review by the Board of
Directors, such policies include the selection of brokers which provide
execution and/or research services and or other services, including pricing or
quotation services, directly or through others ("brokerage services") considered
by WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Such brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider the willingness of particular
brokers and dealers to sell shares of the Fund and other funds managed by WRIMCO
and its affiliates as a factor in its selection. No allocation of brokerage or
principal business is made to provide any other benefits to WRIMCO or its
affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Corporation and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist
WRIMCO in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in a
Fund's portfolio or being considered for purchase.
In placing transactions for a portfolio, WRIMCO may consider sales of
shares of each portfolio of the Corporation and other funds managed by WRIMCO
and its affiliates as a factor in the selection of brokers to execute portfolio
transactions. WRIMCO intends to allocate brokerage on the basis of this factor,
among others, only if the sale is $2 million or more. This results in the
consideration only of sales which by their nature would not ordinarily be made
by the Distributor's direct sales force and is done in order to prevent the
direct sales force from being disadvantaged by the fact that it cannot
participate in the Corporation's brokerage. The Corporation may also use its
brokerage to pay for pricing or quotation services to value Fund securities.
The table below sets forth the brokerage commissions paid by each of the
Funds then in existence during the fiscal years ended March 31, 1996, 1995 and
1994. 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.
1996 1995 1994
---- ----- -----
Total Return Fund $116,546 $ 84,002 $70,780
Growth Fund 64,707 44,809 26,876
Limited-Term Bond Fund --- --- ---
Municipal Bond Fund 1,875 --- ---
International Growth Fund* 68,195 --- ---
Asset Strategy Fund** 13,615
-------- ------- -------
Total $264,938 $128,811 $97,656
======== ======= =======
*Formerly Global Income Fund.
**For the period from April 20, 1995, the date of the initial public
offering, to 3/31/96.
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, 1996 for each of the Funds. These transactions were
allocated to these broker-dealers by the internal allocation procedures
described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Total Return Fund ................. $69,646,183 $ 96,336
Growth Fund ....................... 18,268,108 30,296
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
International Growth Fund* ........ --- ---
Asset Strategy Fund ............... 4,058,330 8,587
---------- -------
Total .......................... $91,972,621 $135,219
========== =======
*Formerly Global Income Fund
As of March 31, 1996, Waddell & Reed Growth Fund owned J.P. Morgan and
Co., Inc. securities in the aggregate amount of $6,102,872. J.P. Morgan and
Co., Inc. is a regular broker of the Fund. Waddell & Reed Limited-Term Bond
Fund owned Merrill Lynch & Co., Inc. securities in the aggregate amount of
$585,408. Merrill Lynch & Co., Inc. is a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The individual who manages a Fund 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 and TMK/United Funds,
Inc. or accounts over which Waddell & Reed Asset Management Company exercises
investment discretion frequently buy or sell the same securities at the same
time. If this happens, the amount of each purchase or sale is divided. This is
done on the basis of the amount of securities each fund or account wanted to buy
or sell. Sharing in large transactions could affect the price a Fund pays or
receives or the amount it buys or sells. However, sometimes a better negotiated
commission is available.
OTHER INFORMATION
General
The Corporation was organized on January 29, 1992. The name of
International Growth Fund (formerly Global Income Fund) was changed effective
April 20, 1995.
The Shares of the Funds
The shares of each of the Funds represents an interest in that Fund's
securities and other assets and in its profits or losses. Each fractional share
of a class has the same rights, in proportion, as a full share of that class.
Each Fund offers two classes of its shares: Class B and Class Y. Prior to
December 2, 1995, each Fund offered only one class of shares to the public.
Shares outstanding on that date were designated as Class B shares. Each class
of a Fund represents an interest in the same assets of the Fund and differ as
follows: each class of shares has exclusive voting rights on matters pertaining
to matters appropriately limited to that class; Class B shares are subject to a
contingent deferred sales charge; Class Y shares are subject to an ongoing
distribution and service fee that differs in amount from that of the Class B
shares; each class may bear differing amounts of certain class-specific
expenses; and each class has a separate exchange privilege. The Funds do not
anticipate that there will be any conflicts between the interests of holders of
the different classes of shares of the same Fund by virtue of those classes. On
an ongoing basis, the Board of Directors will consider whether any such conflict
exists and, if so, take appropriate action. Each share of a Fund is entitled to
equal voting, dividend, liquidation and redemption rights, except that due to
the differing expenses borne by the two classes, dividends and liquidation
proceeds of Class B shares are expected to be lower than for Class Y shares of
the same Fund.
Each share of each Fund (regardless of class) is entitled to one vote. On
certain matters such as the election of Directors, all shares of the six Funds
vote together as a single class. On other matters affecting a particular Fund,
the shares of that Fund vote together as a separate class, such as with respect
to a change in an investment restriction of a particular Fund, except that as to
matters for which a separate vote of a class is required by the 1940 Act or
which affects the interests of one or more particular classes, the affected
shareholders vote as a separate class. In voting on a Management Agreement,
approval by the shareholders of a Fund is effective as to that Fund whether or
not enough votes are received from the shareholders of the other Funds to
approve the Management Agreement for the other Funds.
Initial Investment and Organizational Expenses
On April 24, 1992, the Distributor purchased for investment 2,000 shares of
each Fund at a net asset value of $10.00 per share.
The Corporation's organizational expenses in the amount of $162,960 were
advanced by the Distributor and are an obligation to be paid by the Corporation.
These expenses are being amortized over the 60-month period following the date
of the initial public offering of the Corporation's shares. In the event that
all or part of the Distributor's initial investment in the Corporation's shares
is redeemed prior to the full reimbursement of the organizational expenses, the
Corporation's obligation to make reimbursement will cease.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A Standard & Poor's ("S&P") corporate
bond rating is a current assessment of the creditworthiness of an obligor with
respect to a specific obligation. This assessment of creditworthiness may take
into consideration obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace periods. The D rating will also be used upon a filing of
a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service ("MIS") rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Description of Preferred Stock Ratings
Standard & Poor's Ratings Services. A S&P preferred stock rating is an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations. A preferred stock rating
differs from a bond rating inasmuch as it is assigned to an equity issue, which
issue is intrinsically different from, and subordinated to, a debt issue.
Therefore, to reflect this difference, the preferred stock rating symbol will
normally not be higher than the debt rating symbol assigned to, or that would be
assigned to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's Rating's Services. A S&P note rating reflects the
liquidity factors and market access risks unique to notes. Notes maturing in 3
years or less will likely receive a note rating. Notes maturing beyond 3 years
will most likely receive a long-term debt rating. The following criteria will
be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS ratings
for state and municipal short-term obligations will be designated MIS Investment
Grade (MIG). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity of
the borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the short
run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's Ratings Services commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. Ratings are graded into several categories, ranging from
"A-1" for the highest quality obligations to D for the lowest. Issuers rated A
are further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are regarded
as having the greatest capacity for timely payment. An A-1 designation
indicates that the degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
with a plus sign (+) designation. An A-2 rating indicates that capacity for
timely payment is satisfactory; however, the relative degree of safety is not as
high as for issues designated A-1. Issues rated A-3 have adequate capacity for
timely payment; however, they are more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Issues rated B are regarded as having only speculative capacity for timely
payment. A C rating is assigned to short-term debt obligations with a doubtful
capacity for payment. Debt rated D is in payment default, which occurs when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless 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. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
DOLLAR-WEIGHTED AVERAGE MATURITY
Dollar-Weighted Average Maturity is derived by multiplying the value of
each investment by the number of days remaining to its maturity, adding these
calculations, and then dividing the total by the value of the Fund's portfolio.
An obligation's maturity is typically determined on a stated final maturity
basis, although there are some exceptions to this rule.
For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be called,
refunded, or redeemed may be considered to be its maturity date. Also, the
maturities of mortgage-backed securities and some asset-backed securities, such
as collateralized mortgage obligations, are determined on a weighted average
life basis, which is the average time for principal to be repaid. For a
mortgage security, this average time is calculated by assuming a constant
prepayment rate for the life of the mortgage. The weighted average life of
these securities is likely to be substantially shorter than their stated final
maturity.
The following are descriptions of some of the ratings of securities which
the Funds may use. The Funds may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.97%
Walt Disney Company (The) .............. 31,800 $ 2,031,225
Apparel and Accessory Stores - 2.43%
Gap, Inc. (The) ........................ 31,800 1,760,925
Nordstrom, Inc. ........................ 17,000 823,429
Tommy Hilfiger Corporation* ............ 53,800 2,468,075
Total ................................. 5,052,429
Building Materials and Garden Supplies - 0.80%
Home Depot, Inc. (The) ................. 34,700 1,661,263
Business Services - 1.41%
Discreet Logic Inc.* ................... 10,000 136,250
General Motors Corporation, Class E .... 49,100 2,798,700
Total ................................. 2,934,950
Chemicals and Allied Products - 12.02%
Abbott Laboratories .................... 34,500 1,405,875
Air Products & Chemicals, Inc. ......... 52,200 2,851,425
Colgate-Palmolive Company .............. 27,200 2,118,200
Crompton & Knowles Corporation ......... 43,500 636,188
Dow Chemical Company (The) ............. 26,100 2,267,437
du Pont (E.I.) de Nemours and Company .. 45,400 3,768,200
Geon Company (The) ..................... 40,700 1,083,637
Merck & Co., Inc. ...................... 18,200 1,132,950
PPG Industries, Inc. ................... 56,700 2,771,213
Pfizer Inc. ............................ 13,600 911,200
Praxair, Inc. .......................... 45,400 1,810,325
Procter & Gamble Company (The) ......... 27,200 2,305,200
Union Carbide Corporation .............. 39,700 1,970,112
Total ................................. 25,031,962
Communication - 3.65%
AT&T Corporation ....................... 22,700 1,390,375
MCI Communications Corporation ......... 85,100 2,579,551
MFS Communications Company, Inc.* ...... 12,500 778,900
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 90,800 1,946,480
Vanguard Cellular Systems, Inc.,
Class A* .............................. 44,500 898,322
Total ................................. 7,593,628
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS(Continued)
Depository Institutions - 1.96%
Citicorp ............................... 34,100 $ 2,728,000
First Bank Systems, Inc. ............... 22,700 1,353,488
Total ................................. 4,081,488
Eating and Drinking Places - 1.47%
McDonald's Corporation ................. 63,600 3,052,800
Electric, Gas and Sanitary Services - 0.41%
WMX Technologies, Inc. ................. 27,200 863,600
Electronic and Other Electric Equipment - 12.27%
AMP Incorporated ....................... 49,900 2,064,613
Analog Devices, Inc.* .................. 118,350 3,313,800
Duracell International Inc. ............ 19,300 957,762
Emerson Electric Co. ................... 18,200 1,469,650
General Electric Company ............... 54,500 4,244,188
Harman International Industries,
Incorporated .......................... 7,980 299,250
Intel Corporation ...................... 69,500 3,948,434
LSI Logic Corporation* ................. 54,400 1,455,200
Micron Technology, Inc. ................ 16,700 523,962
Molex Incorporated, Class A ............ 33,750 1,084,219
Motorola, Inc. ......................... 61,000 3,233,000
Rival Company (The) .................... 10,000 241,250
Texas Instruments Incorporated ......... 15,900 808,912
Whirlpool Corporation .................. 34,700 1,917,175
Total ................................. 25,561,415
Fabricated Metal Products - 0.91%
Parker Hannifin Corporation ............ 27,200 1,020,000
TRINOVA Corporation .................... 27,200 867,000
Total ................................. 1,887,000
Food and Kindred Products - 2.35%
CPC International Inc. ................. 22,700 1,574,812
Pepsi-Cola Puerto Rico Bottling Co.,
Class B ............................... 48,500 454,687
PepsiCo, Inc. .......................... 45,400 2,871,550
Total ................................. 4,901,049
Food Stores - 0.44%
General Nutrition, Incorporated* ....... 36,300 914,288
Furniture and Home Furnishings Stores - 1.04%
Circuit City Stores, Inc. .............. 72,600 2,168,925
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS(Continued)
General Building Contractors - 1.17%
Centex Corporation ..................... 51,900 $ 1,608,900
Pulte Corporation ...................... 31,100 835,813
Total ................................. 2,444,713
General Merchandise Stores - 3.49%
Dayton-Hudson Corporation .............. 21,100 1,790,863
May Department Stores Company (The) .... 45,400 2,190,550
OfficeMax, Inc.* ....................... 29,250 709,312
Penney (J.C.) Company, Inc. ............ 30,700 1,527,325
Wal-Mart Stores, Inc. .................. 45,400 1,049,875
Total ................................. 7,267,925
Health Services - 0.93%
Columbia/HCA Healthcare Corporation .... 17,000 981,750
Tenet Healthcare Corporation* .......... 45,400 953,400
Total ................................. 1,935,150
Heavy Construction, Excluding Building - 0.98%
Fluor Corporation ...................... 18,200 1,242,150
Foster Wheeler Corporation ............. 18,200 807,625
Total ................................. 2,049,775
Hotels and Other Lodging Places - 0.85%
ITT Corporation* ....................... 29,500 1,770,000
Industrial Machinery and Equipment - 10.37%
Applied Materials, Inc.* ............... 78,500 2,732,742
Case Corporation ....................... 62,200 3,164,425
Caterpillar Inc. ....................... 72,600 4,936,800
cisco Systems, Inc.* ................... 90,800 4,216,480
Deere & Company ........................ 93,300 3,895,275
Harnischfeger Industries, Inc. ......... 27,200 1,054,000
Hewlett-Packard Company ................ 9,100 855,400
Ingersoll-Rand Company ................. 18,200 741,650
Total ................................. 21,596,772
Instruments and Related Products - 2.81%
Baxter International Inc. .............. 22,700 1,027,175
General Motors Corporation, Class H .... 8,000 506,000
Medtronic, Inc. ........................ 36,300 2,164,388
Teradyne, Inc.* ........................ 34,100 571,175
Xerox Corporation ...................... 12,700 1,593,850
Total ................................. 5,862,588
Insurance Agents, Brokers and Service - 0.69%
ITT Hartford Group, Inc. ............... 29,500 1,445,500
Insurance Carriers - 0.87%
United HealthCare Corporation .......... 29,500 1,814,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS(Continued)
Lumber and Wood Products - 0.64%
Georgia-Pacific Corporation ............ 19,300 $ 1,338,937
Nondepository Institutions - 1.75%
Federal Home Loan Mortgage Corporation . 22,700 1,935,175
Federal National Mortgage Association .. 53,600 1,708,500
Total ................................. 3,643,675
Paper and Allied Products - 3.55%
Bowater Incorporated ................... 20,900 778,525
Champion International Corporation ..... 22,700 1,027,175
International Paper Company ............ 54,500 2,145,938
Temple-Inland Inc. ..................... 15,900 745,312
Union Camp Corporation ................. 22,700 1,126,487
Weyerhaeuser Company ................... 34,100 1,572,862
Total ................................. 7,396,299
Prepackaged Software - 3.13%
Broderbund Software, Inc.* ............. 20,000 750,000
Computer Associates International, Inc. 17,000 1,217,625
Informix Corporation* .................. 30,700 811,616
Microsoft Corporation* ................. 13,600 1,401,643
Oracle Systems Corporation* ............ 49,900 2,345,300
Total ................................. 6,526,184
Primary Metal Industries - 0.39%
Nucor Corporation ...................... 13,600 804,100
Railroad Transportation - 2.93%
CSX Corporation ........................ 31,800 1,450,875
Conrail Inc. ........................... 27,200 1,948,200
Norfolk Southern Corporation ........... 13,600 1,156,000
Union Pacific Corporation .............. 22,700 1,557,788
Total ................................. 6,112,863
Rubber and Miscellaneous Plastics Products - 2.33%
Armstrong World Industries, Inc. ....... 40,900 2,540,912
Goodyear Tire & Rubber Company (The) ... 45,400 2,315,400
Total ................................. 4,856,312
Transportation by Air - 3.53%
AMR Corporation* ....................... 18,200 1,628,900
Southwest Airlines Co. ................. 112,400 3,329,850
USAir Group, Inc.* ..................... 131,600 2,401,700
Total ................................. 7,360,450
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS(Continued)
Transportation Equipment - 7.18%
Boeing Company (The) ................... 28,800 $ 2,494,800
Chrysler Corporation ................... 49,900 3,106,275
Dana Corporation ....................... 34,500 1,151,438
Eaton Corporation ...................... 22,700 1,367,675
Ford Motor Company ..................... 86,200 2,963,125
General Motors Corporation ............. 45,400 2,417,550
ITT Industries, Inc. ................... 29,500 752,250
Sundstrand Corporation ................. 17,200 700,900
Total ................................. 14,954,013
Wholesale Trade - Nondurable Goods - 1.13%
Gillette Company (The) ................. 45,400 2,349,450
TOTAL COMMON STOCKS - 90.85% $189,264,978
(Cost: $147,003,072) Principal
Amount in
SHORT-TERM SECURITIES Thousands
Commercial Paper
Chemicals and Allied Products - 2.27%
Air Products & Chemicals, Inc.,
5.35%, 5-28-96 ........................ $1,400 1,388,141
Ciba-Geigy Corporation,
5.2%, 4-9-96 .......................... 3,350 3,346,129
Total ................................. 4,734,270
Depository Institutions - 0.19%
U.S. Bancorp,
Master Note ........................... 387 387,000
Electric, Gas and Sanitary Services - 3.21%
Public Service Electric & Gas Co.,
5.53%, 5-17-96 ........................ 6,740 6,692,374
Food and Kindred Products - 0.72%
General Mills, Inc.,
Master Note ........................... 1,502 1,502,000
Personal Services - 1.49%
Block Financial Corp.,
5.42%, 4-26-96......................... 3,110 3,098,294
Wholesale Trade - Nondurable Goods - 0.37%
Sara Lee Corporation,
Master Note ........................... 760 760,000
TOTAL SHORT-TERM SECURITIES - 8.25% $ 17,173,938
(Cost: $17,173,938)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1996
Value
TOTAL INVESTMENT SECURITIES - 99.10% $206,438,916
(Cost: $164,177,010)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.90% 1,880,940
NET ASSETS - 100.00% $208,319,856
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS
Business Services - 14.11%
America Online, Inc.* .................. 160,000 $ 8,989,920
CUC International Inc.* ................ 85,000 2,486,250
Cerner Corporation* .................... 90,000 2,070,000
CyCare Systems, Inc.* .................. 30,000 855,000
HCIA Inc.* ............................. 70,000 3,237,500
Health Management Systems, Inc.* ...... 45,000 1,271,250
IMNET Systems, Inc.* ................... 50,000 1,500,000
Mecon, Inc.* ........................... 60,000 1,177,500
PHAMIS, Inc.* .......................... 100,000 1,681,200
SCB Computer Technology, Inc.* ......... 25,000 528,125
Shiva Corporation* ..................... 50,000 4,550,000
Sync Research, Inc.* ................... 14,700 227,850
Total ................................. 28,574,595
Chemicals and Allied Products - 1.28%
Watson Pharmaceuticals Inc.* ........... 64,500 2,588,063
Communication - 3.05%
Intermedia Communications of
Florida, Inc.* ........................ 100,000 1,818,700
MFS Communications Company, Inc.* ...... 70,000 4,361,840
Total ................................. 6,180,540
Electronic and Other Electric Equipment - 8.94%
Ascend Communications, Inc.* ........... 160,000 8,629,920
Cascade Communications Corp.* .......... 60,000 5,392,500
Fusion Systems Corporation* ............ 45,000 1,119,375
LSI Logic Corporation* ................. 70,000 1,872,500
Silicon Valley Group, Inc.* ............ 45,000 1,091,250
Total ................................. 18,105,545
Furniture and Home Furnishings Stores - 1.11%
Movie Gallery, Inc.* ................... 45,000 1,153,125
Williams-Sonoma, Inc.* ................ 48,750 1,099,897
Total ................................. 2,253,022
Health Services - 5.78%
ARV Assisted Living, Inc.* ............. 70,000 1,172,500
American Healthcorp, Inc.* ............. 175,000 1,553,125
Emeritus Corporation * ................. 100,000 2,037,500
Inphynet Medical Management Inc.* ...... 90,000 1,608,750
Quorum Health Group, Inc.* ............. 50,000 1,178,100
Sierra Health Services, Inc.* ......... 64,000 2,088,000
Vencor, Incorporated* .................. 60,000 2,070,000
Total ................................. 11,707,975
Industrial Machinery and Equipment - 0.79%
Franklin Electronic Publishers, Inc.* .. 65,000 1,600,625
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 3.61%
Boston Scientific Corporation* ......... 26,730 $ 1,229,580
Conceptus, Inc.* ....................... 20,000 400,000
Daig Corporation* ...................... 20,000 485,000
St. Jude Medical, Inc.* ................ 45,000 1,679,040
STERIS Corporation* .................... 70,000 2,091,250
Tecnol Medical Products, Inc.* ......... 80,600 1,430,650
Total ................................. 7,315,520
Insurance Agents, Brokers and Services - 0.36%
CRA Managed Care, Inc.* ................ 20,000 722,500
Insurance Carriers - 3.27%
Amerin Corporation* .................... 48,800 1,326,726
PacifiCare Health Systems, Inc.* ....... 26,000 2,213,250
United HealthCare Corporation .......... 50,000 3,075,000
Total ................................. 6,614,976
Miscellaneous Retail - 4.31%
Books-A-Million, Inc.* ................. 50,000 556,250
OmniCare, Inc. ......................... 68,800 3,706,600
Tiffany & Co. .......................... 55,000 3,121,250
Tractor Supply Company* ............... 50,000 1,343,750
Total ................................. 8,727,850
Nondepository Institutions - 0.37%
Regional Acceptance Corporation* ....... 75,000 759,375
Personal Services - 0.89%
Block (H&R), Inc. ...................... 50,000 1,806,250
Prepackaged Software - 14.46%
Adobe Systems Incorporated ............. 70,000 2,253,090
Broderbund Software, Inc.* ............. 34,100 1,278,750
Dendrite International, Inc.* .......... 130,000 2,843,750
Electronic Arts Inc.* .................. 24,000 637,488
Expert Software, Inc.* ................. 100,000 1,412,500
GT Interactive Software Corp.* ......... 120,000 1,275,000
HPR Inc. ............................... 80,000 3,160,000
Macromedia, Inc.* ..................... 60,200 2,581,075
Medic Computer Systems, Inc.* .......... 25,000 1,898,425
Microsoft Corporation* ................. 10,000 1,030,620
Minnesota Educational Computing
Corporation* .......................... 25,000 565,625
Parametric Technology Corporation* ..... 120,000 4,687,440
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS (Continued)
Prepackaged Software (Continued)
Quarterdeck Corporation* ............... 125,000 $ 1,835,875
Summit Medical Systems, Inc.* .......... 45,000 894,375
Synopsys, Inc.* ........................ 60,000 1,920,000
Wonderware Corporation* ............... 43,000 1,015,875
Total ................................. 29,289,888
Real Estate - 1.64%
Stewart Enterprises, Inc., Class A ..... 77,400 3,323,324
Stone, Clay and Glass Products - 0.59%
Department 56, Inc.* ................... 55,000 1,203,125
Transportation Equipment - 1.23%
Gentex Corporation* .................... 50,000 1,475,000
Superior Industries International, Inc. 40,700 1,017,500
Total ................................. 2,492,500
Trucking and Warehousing - 0.48%
Heartland Express, Inc.* ............... 38,489 967,036
Wholesale Trade - Durable Goods - 0.29%
SCP Pool Corporation* .................. 40,000 590,000
TOTAL COMMON STOCKS - 66.56% $134,822,709
(Cost: $92,397,258)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 7.92%
Air Products & Chemicals, Inc.,
5.35%, 5-28-96 ........................ $ 4,870 4,828,747
Ciba-Geigy Corporation,
5.2%, 4-9-96 .......................... 4,220 4,215,123
Hercules Inc.,
5.23%, 4-11-96 ........................ 7,000 6,989,831
Total ................................. 16,033,701
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Depository Institutions - 3.11%
Morgan (J.P.) & Co. Inc.,
5.25%, 4-9-96 ......................... $ 6,110 $ 6,102,872
U.S. Bancorp,
Master Note ........................... 193 193,000
Total ................................. 6,295,872
Electric, Gas and Sanitary Services - 9.11%
Commonwealth Edison Co.,
5.5%, 4-29-96 ......................... 8,000 7,965,778
Dominion Resources, Inc.,
5.31%, 4-18-96 ........................ 5,265 5,251,798
Georgia Power Co.,
5.34%, 5-6-96 ......................... 5,270 5,242,640
Total ................................. 18,460,216
Food and Kindred Products - 2.62%
ConAgra, Inc.,
5.33%, 4-17-96 ........................ 4,025 4,015,465
General Mills, Inc.,
Master Note ........................... 1,301 1,301,000
Total ................................. 5,316,465
Nondepository Institutions - 5.65%
International Business Machines Credit Corp.,
5.37%, 4-11-96 ........................ 6,205 6,195,744
Transamerica Finance Corp.,
5.18%, 4-5-96 ......................... 5,255 5,251,975
Total ................................. 11,447,719
Petroleum and Coal Products - 2.00%
Kerr-McGee Credit Corp.,
5.53%, 4-22-96 ........................ 4,055 4,041,919
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Transporation Equipment - 0.98%
Dana Credit Corp.,
5.5%, 5-24-96 ......................... $ 2,000 $ 1,983,806
Wholesale Trade - Nondurable Goods - 0.89%
Sara Lee Corporation,
Master Note ........................... 1,806 1,806,000
Total Commercial Paper - 32.28% 65,385,698
Commercial Paper (backed by irrevocable bank
letter of credit) - 0.91%
Rubber and Miscellaneous Plastics Products
Michelin Tire Corporation (Societe Generale),
5.38%, 5-1-96 ......................... 1,845 1,836,728
TOTAL SHORT-TERM SECURITIES - 33.19% $ 67,222,426
(Cost: $67,222,426)
TOTAL INVESTMENT SECURITIES - 99.75% $202,045,135
(Cost: $159,619,684)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.25% 512,750
NET ASSETS - 100.00% $202,557,885
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS
Australia - 1.80%
Westpac Banking Corp. (A) .............. 80,000 $ 376,274
Denmark - 2.91%
Copenhagen Airports A/S (A) ............ 3,000 294,830
Tele Danmark A/S (A) ................... 6,000 312,730
Total ................................. 607,560
Finland - 2.11%
Nokia Corporation, Series K (A) ........ 7,000 243,609
Tampella OY* (A) ....................... 125,000 197,366
Total ................................. 440,975
France - 1.34%
Lapeyre S.A. (A) ....................... 5,000 280,453
Germany - 7.98%
Depfa Bank (A) ......................... 2,500 89,763
GILDEMEISTER Aktiengesellschaft (A)* ... 5,000 360,748
Herlitz International Trading AG (A) ... 1,250 486,925
Mannesman AG (A) ....................... 2,000 728,948
Total ................................. 1,666,384
Hong Kong - 5.31%
First Pacific Company Limited (A) ...... 300,000 426,693
Guangdong Corporation Limited (A) ...... 484,000 306,650
HSBC Holdings Plc (A) .................. 25,000 374,972
Total ................................. 1,108,315
Indonesia - 1.45%
Pt United Tractors - F (A) ............. 150,000 301,669
Japan - 3.27%
Aloka Co. Ltd. (A) ..................... 7,000 95,603
Hitachi (A) ............................ 30,000 291,862
Kyocera Corporation (A) ................ 2,000 135,828
Sankyo Co., Ltd. (A) ................... 7,000 160,430
Total ................................. 683,723
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS (Continued)
Mexico - 5.31%
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B (A) ............. 100,000 $ 455,604
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS ..................... 25,000 325,000
Telefonos de Mexico, S.A. de C.V.,
ADR ................................... 10,000 328,750
Total ................................. 1,109,354
Netherlands - 1.70%
Koninklijke PTT Nederland N.V. (A) ..... 9,000 354,116
Norway - 2.56%
Kvaerner a.s., Series A (A) ............ 14,800 535,396
Philippines - 1.87%
Universal Robina Corporation (A) ....... 800,000 389,610
Sweden - 9.17%
ASTRA AB, Class A (A) .................. 15,000 694,019
Kinnevik AB, Series B (A) .............. 6,000 206,300
Skandia Enskilda Banken, Class A (A) ... 90,000 665,989
AB Volvo (A) ........................... 15,000 348,691
Total ................................. 1,914,999
Switzerland - 1.98%
Ciba-Geigy AG (A) ...................... 330 413,853
United Kingdom - 7.12%
BTR PLC (A) ............................ 50,000 241,108
Kingfisher plc (A) ..................... 50,000 434,147
Next plc (A) ........................... 38,500 298,161
United Biscuits (Holdings) Public
Limited Co. (A) ....................... 40,000 142,223
Vodafone Group Plc (A) ................. 100,000 370,055
Total ................................. 1,485,694
TOTAL COMMON STOCKS - 55.88% $11,668,375
(Cost: $10,821,411)
PREFERRED STOCKS - 2.34%
Germany
Hornbach Holding AG (A) ................ 4,000 $ 228,982
Marschollek, Lautenschlager und
Partner AG (A) ........................ 289 260,396
Total ................................. $ 489,378
(Cost: $663,615)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES
Australia - 0.78%
Queensland Treasury Corporation,
12.0%, 5-15-97 (B) .................... $A200 $ 162,896
Sweden - 2.51%
Kingdom of Sweden,
10.75%, 1-23-97 (B) ................... SEK3,400 523,523
TOTAL OTHER GOVERNMENT SECURITIES - 3.29% $ 686,419
(Cost: $607,457)
UNITED STATES GOVERNMENT SECURITY - 4.82%
United States Treasury,
7.25%, 8-31-96 ........................ $1,000 $ 1,007,030
(Cost: $1,008,894)
Face
Amount in
Thousands
UNREALIZED GAIN ON OPEN FORWARD
CURRENCY CONTRACTS - 0.02%
Deutsche Marks, 10-2-96 (B) ............ DM1,800 $ 845
Japanese Yen, 10-2-96 (B) .............. Y53,500 2,123
Total ................................. $ 2,968
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 4.30%
Ciba-Geigy Corp.,
5.2%, 4-9-96 .......................... $ 900 $ 898,960
Communication - 6.41%
AT&T Capital Corp.,
5.25%, 4-11-96 ........................ 1,340 1,338,046
Depository Institutions - 4.74%
U.S. Bancorp,
Master Note ........................... 990 990,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services - 8.60%
Pacific Gas and Electric Company,
5.42%, 4-2-96 ......................... $ 900 $ 899,864
Pacificorp,
5.35%, 4-29-96 ........................ 900 896,255
Total ................................. 1,796,119
Food and Kindred Products - 5.20%
ConAgra, Inc.,
5.55%, 4-24-96 ........................ 900 896,809
General Mills, Inc.,
Master Note ........................... 188 188,000
Total ................................. 1,084,809
Wholesale Trade - Nondurable Goods - 3.82%
Sara Lee Corporation,
Master Note ........................... 798 798,000
TOTAL SHORT-TERM SECURITIES - 33.07% $ 6,905,934
(Cost: $6,905,934)
TOTAL INVESTMENT SECURITIES - 99.42% $20,760,104
(Cost: $20,007,311)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.58% 120,902
NET ASSETS - 100.00% $20,881,006
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1996
Shares Value
COMMON STOCKS
Business Services - 2.43%
Cerner Corporation* .................... 14,000 $ 322,000
Chemicals and Allied Products - 4.27%
Dow Chemical Company (The) ............. 4,000 347,500
Genentech, Inc.* ....................... 1,000 52,625
Geon Company (The) ..................... 6,200 165,075
Total ................................. 565,200
Communication - 1.63%
Nokia Corporation, Series A, ADS ....... 6,300 215,775
Depository Institutions - 1.78%
Grupo Financiero Banamex Accival, S.A. de
C.V., B, CPO shares (A)* .............. 110,000 234,998
Electronic and Other Electric Equipment - 6.16%
Motorola, Inc. ......................... 5,000 265,000
Silicon Valley Group, Inc.* ............ 13,200 320,100
Texas Instruments Incorporated ......... 4,500 228,938
Total ................................. 814,038
Food and Kindred Products - 1.11%
Buenos Aires Embotelladora S.A., ADR ... 8,800 146,300
Health Services - 2.08%
Beverly Enterprises, Inc.* ............. 25,000 275,000
Holding and Other Investment Offices - 1.27%
LTC Properties, Inc. ................... 10,300 167,375
Industrial Machinery and Equipment - 0.68%
Samsung Electronics Co.,
Ltd., GDR (C)* ........................ 6 352
SanDisk Corporation .................... 7,000 89,250
Total ................................. 89,602
Instruments and Related Products - 0.76%
Teradyne, Inc.* ........................ 6,000 100,500
Oil and Gas Extraction - 1.93%
Enron Oil & Gas Company ................ 9,700 255,837
Prepackaged Software - 1.92%
Adobe Systems Incorporated ............. 2,700 86,905
Intuit Inc.* ........................... 3,700 166,500
Total ................................. 253,405
TOTAL COMMON STOCKS - 26.02% $3,440,030
(Cost: $3,690,232)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication - 5.24%
MFS Communications Company, Inc.,
0.00%, 1-15-2006 (D) .................. $575 $ 356,500
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 325 336,375
Total ................................. 692,875
Electronic and Other Electric Equipment - 1.40%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 200 185,626
Health Services - 1.95%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (C) ................... 250 257,500
TOTAL CORPORATE DEBT SECURITIES - 8.59%... $ 1,136,001
(Cost: $1,169,832)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.875%, 2-28-97 ....................... 50 50,609
6.125%, 5-31-97 ....................... 850 854,913
7.25%, 2-15-98 ........................ 60 61,519
7.125%, 2-29-2000 ..................... 60 62,194
5.875%, 6-30-2000 ..................... 400 396,876
7.5%, 2-15-2005 ....................... 60 64,387
9.125%, 5-15-2018 ..................... 1,150 1,443,066
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 22.18% $ 2,933,564
(Cost: $2,972,682)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 4.53%
Ciba-Geigy Corporation,
5.2%, 4-9-96 .......................... $ 600 $ 599,307
Communication - 3.57%
U.S. West Communications, Inc.,
5.35%, 5-10-96 ........................ 475 472,247
Depository Institutions - 3.29%
U.S. Bancorp,
Master Note ........................... 435 435,000
Electric, Gas and Sanitary Services - 11.69%
Dominion Resources, Inc.,
5.31%, 4-18-96 ........................ 600 598,496
Pacificorp,
5.35%, 4-29-96 ........................ 500 497,919
Public Service Electric & Gas Co.,
5.47%, 4-17-96 ........................ 450 448,906
Total ................................. 1,545,321
Food and Kindred Products - 4.45%
General Mills, Inc.,
Master Note ........................... 589 589,000
Instruments and Related Products - 4.12%
Baxter International Inc.,
5.35%, 4-12-96 ........................ 545 544,109
Transportation Equipment - 4.51%
Dana Credit Corp.,
5.56%, 5-14-96 ........................ 600 596,015
Wholesale Trade - Nondurable Goods - 4.60%
Sara Lee Corporation,
Master Note ........................... 608 608,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND, INC.
MARCH 31, 1996
Value
TOTAL SHORT-TERM SECURITIES - 40.76% $ 5,388,999
(Cost: $5,388,999)
TOTAL INVESTMENT SECURITIES - 97.55% $12,898,594
(Cost: $13,221,745)
CASH AND OTHER ASSETS, NET OF
LIABILITIES - 2.45% 323,863
NET ASSETS - 100.00% $13,222,457
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Business Services - 1.06%
United States Leasing International, Inc.,
8.75%, 5-1-96 ......................... $250 $ 250,535
Chemicals and Allied Products - 3.08%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 700 729,113
Communication - 2.23%
GTE Corporation,
8.85%, 3-1-98 ......................... 410 427,552
Southwestern Bell Telephone Company,
8.3%, 6-1-96 .......................... 100 100,360
Total ................................. 527,912
Depository Institutions - 3.99%
First Chicago Corporation,
7.625%, 1-15-2003 ..................... 600 623,640
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 322,386
Total ................................. 946,026
Electric, Gas and Sanitary Services - 0.42%
Connecticut Light & Power Company (The),
6.5%, 1-1-98 .......................... 100 100,048
Food and Kindred Products - 1.05%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ 236 247,536
General Merchandise Stores - 5.34%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 200 210,096
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 505 533,502
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 522,030
Total ................................. 1,265,628
Industrial Machinery and Equipment - 3.96%
Tenneco Inc.,
8.0%, 11-15-99 ........................ 600 625,770
Tennessee Gas Pipeline Company,
9.25%, 5-15-96 ........................ 310 311,035
Total ................................. 936,805
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Instruments and Related Products - 5.65%
Baxter International Inc.:
7.5%, 5-1-97 .......................... $600 $ 609,846
8.125%, 11-15-2001 .................... 350 366,541
Polaroid Corporation,
8.0%, 3-15-99 ......................... 350 361,974
Total ................................. 1,338,361
Insurance Carriers - 1.91%
CIGNA Corporation,
8.0%, 9-1-96 .......................... 450 453,411
Nondepository Institutions - 17.85%
Associates Corporation of North America:
5.75%, 11-15-98 ....................... 500 494,945
8.25%, 12-1-99 ........................ 300 317,412
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 750 773,558
Chrysler Financial Corporation,
8.125%, 12-15-96 ...................... 620 629,901
Ford Motor Credit Company:
8.0%, 12-1-97 ......................... 700 720,489
4.3%, 7-15-98 ......................... 81 80,415
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 50,314
7.75%, 1-15-99 ........................ 500 513,750
Norwest Financial, Inc.,
6.2%, 9-15-99 ......................... 650 645,528
Total ................................. 4,226,312
Personal Services - 2.92%
Service Corporation International,
6.375%, 10-1-2000...................... 700 692,489
Petroleum and Coal Products - 3.51%
BP America Inc.,
9.5%, 1-1-98 .......................... 225 237,544
Chevron Corporation,
8.11%, 12-1-2004 ...................... 360 384,034
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 209,152
Total ................................. 830,730
Railroad Transportation - 2.34%
CSX Transportation,
8.4%, 8-1-96 .......................... 550 554,417
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Security and Commodity Brokers - 6.86%
Merrill Lynch & Co., Inc.,
6.0%, 1-15-2001........................ 600 585,408
Salomon Inc,
7.75%, 5-15-2000....................... $500 $ 508,790
Smith Barney Holdings, Inc.,
6.0%, 3-15-1997........................ 530 530,535
Total ................................. 1,624,733
Textile Mill Products - 2.83%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 650 670,078
Transportation by Air - 2.28%
Federal Express Corporation,
10.0%, 9-1-98 ......................... 500 538,960
TOTAL CORPORATE DEBT SECURITIES - 67.28% $15,933,094
(Cost: $16,018,269)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 33 32,831
5.5%, 4-15-2013 ....................... 100 99,406
5.5%, 9-15-2013 ....................... 100 99,562
6.4%, 2-15-2018 ....................... 250 247,812
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 400 390,293
5.0%, 12-25-2001 ...................... 490 485,634
8.0%, 2-1-2008 ........................ 275 283,452
6.0%, 1-1-2009 ........................ 322 308,233
6.0%, 2-1-2009 ........................ 334 320,307
6.5%, 12-1-2010 ....................... 714 698,377
6.0%, 1-1-2011 ........................ 584 558,876
6.5%, 2-1-2011 ........................ 586 573,138
7.0%, 9-25-2020 ....................... 47 47,497
7.0%, 3-1-2026 ........................ 510 496,929
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 255 250,586
7.0%, 7-15-2010 ....................... 475 476,961
United States Treasury:
5.625%, 8-31-97 ....................... 400 399,688
5.375%, 5-31-98 ....................... 500 495,390
6.25%, 2-15-2003....................... 400 398,812
TOTAL UNITED STATES GOVERNMENT SECURITIES - 28.14% $6,663,784
(Cost: $6,784,986)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1996
Value
TOTAL SHORT-TERM SECURITIES - 3.11% $ 737,000
(Cost: $737,000)
TOTAL INVESTMENT SECURITIES - 98.53% $23,333,878
(Cost: $23,540,255)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.47% 348,652
NET ASSETS - 100.00% $23,682,530
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.80%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 270,000
ARKANSAS - 1.14%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 387,000
CALIFORNIA - 9.72%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (D) .................... 2,000 1,220,000
Sacramento County Sanitation Districts
Financing Authority, 1993 Revenue Bonds,
5.125%, 12-1-2013 ..................... 1,275 1,177,781
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 474,375
Certificates of Participation, City of Upland,
California to San Antonio Community Hospital,
1993 Series,
5.0%, 1-1-2018 ........................ 500 420,000
Total ................................. 3,292,156
DISTRICT OF COLUMBIA - 2.12%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... 750 716,250
FLORIDA - 3.98%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 965 914,338
Mid-Bay Bridge Authority (Florida),
Revenue Refunding Bonds, Series 1993A,
6.0%, 10-1-2013 ....................... 300 294,375
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
FLORIDA (Continued)
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project), Second
Series 1992,
6.75%, 7-1-2022 ....................... $ 125 $ 140,156
Total ................................. 1,348,869
GEORGIA - 2.92%
Hospital Authority of Albany-Dougherty
County, Georgia, Revenue Bonds (Phoebe
Putney Memorial Hospital), Series 1993,
5.7%, 9-1-2013 ........................ 1,000 990,000
GUAM - 0.73%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 247,500
ILLINOIS - 2.58%
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 466,875
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 407,000
Total ................................. 873,875
INDIANA - 5.47%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 1,500 1,471,875
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 381,000
Total ................................. 1,852,875
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
IOWA - 1.01%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ $ 340 $ 342,975
KANSAS - 2.95%
City of Shawnee, Kansas, Variable Rate
Demand Industrial Revenue Bonds, Series
December 1, 1984 (Shawnee Village
Associates Project),
3.391%, 12-1-2009 ..................... 1,000 1,000,000
LOUISIANA - 1.24%
Parish of St. Charles, State of Louisiana:
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 214,000
Solid Waste Disposal Revenue Bonds
(Louisiana Power & Light Company Project),
Series 1992-A,
7.0%, 12-1-2022 ....................... 200 207,000
Total ................................. 421,000
MARYLAND - 8.18%
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A:
6.3%, 7-1-2016 ........................ 700 704,375
6.2%, 7-1-2010 ........................ 665 687,444
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 927,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... $ 500 $ 451,250
Total ................................. 2,770,569
MICHIGAN - 2.67%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 902,500
MISSOURI - 5.18%
Health and Educational Facilities Authority
of the State of Missouri, Variable Rate
Demand Educational Facilities Revenue Bonds
(The Washington University), Series 1996C,
3.65%, 9-1-2030 ....................... 1,500 1,500,000
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 255,625
Total ................................. 1,755,625
NEBRASKA - 1.48%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ 500 499,375
NEW JERSEY - 3.01%
Pollution Control Financing Authority
of Camden County (Camden County, New
Jersey), Solid Waste Disposal and
Resource Recovery System Revenue Bonds,
Series B,
7.5%, 12-1-2009 ....................... 1,000 1,018,750
NEW MEXICO - 4.65%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,575,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW YORK - 6.09%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1995:
6.25%, 4-1-2014 ....................... $1,400 $ 1,407,000
5.25%, 4-1-2013 ....................... 500 451,250
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 203,500
Total ................................. 2,061,750
NORTH CAROLINA - 3.22%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 1,000 1,090,000
OHIO - 2.41%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 817,500
OKLAHOMA - 5.31%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-2026 ....................... 1,000 1,073,750
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 506,875
6.6%, 7-1-2014 ........................ 200 218,250
Total ................................. 1,798,875
PUERTO RICO - 2.21%
Puerto Rico Highway and Transportation
Authority, Highway Revenue Bonds
(Series W),
3.6%, 7-1-2010 ........................ 750 750,000
TENNESSEE - 3.07%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,040,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TEXAS - 5.31%
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 $ 1,060,000
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 737,000
Total ................................. 1,797,000
WASHINGTON - 1.29%
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds, Series 1989A,
6.0%, 7-1-2017 ........................ 450 437,062
TOTAL MUNICIPAL BONDS - 88.74% $30,056,506
(Cost: $29,566,864)
SHORT-TERM SECURITIES
Commercial Paper
Depository Institutions - 0.39%
U.S. Bancorp,
Master Note ........................... 130 130,000
Food and Kindred Products - 1.48%
General Mills, Inc.,
Master Note ........................... 502 502,000
Transportation Services - 3.05%
PHH Corp.,
5.31%, 4-22-96......................... 1,035 1,031,794
Wholesale Trade - Nondurable Goods - 2.00%
Sara Lee Corporation,
Master Note ........................... 678 678,000
TOTAL SHORT-TERM SECURITIES - 6.92% $ 2,341,794
(Cost: $2,341,794)
TOTAL INVESTMENT SECURITIES - 95.66% $32,398,300
(Cost: $31,908,658)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 4.34% 1,471,551
NET ASSETS - 100.00% $33,869,851
See Notes to Schedules of Investments on page .
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 1996
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Principal amounts are denominated in the indicated foreign currency where
applicable ($A - Australian Dollar, SEK - Swedish Krona, DM - German Mark,
Y - Japanese Yen).
(C) As of March 31, 1996, the following restricted securities were owned by the
Asset Strategy Fund:
Shares/
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Samsung Electronics Co.,
Ltd., GDR, 8/17/95 6 $ 323 $ 352
ARV Assisted Living, Inc.,
Convertible,
6.75%, 4-1-2006 3/28/96 $250 250,000 257,500
-------- --------
$250,323 $257,852
======== ========
The total market value of restricted securities represents approximately
1.95% of the total net assets at March 31, 1996.
(D) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 Total International
Return Growth Growth
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $206,438,916$202,045,135 $20,760,104
Cash .............. 3,900 19,670 6,782
Receivables:
Fund shares sold .. 1,619,722 1,272,532 213,622
Investment securities
sold ............ 563,571 --- ---
Dividends and interest 241,339 41,792 64,457
Unamortized organization
expenses (Note 2) . 9,778 9,778 9,778
Prepaid registration fees
(Note 2) --- --- ---
Prepaid insurance premium 494 494 132
------------------------ -----------
Total assets 208,877,720 203,389,401 21,054,875
Liabilities ------------ ----------- -----------
Payable for Fund shares
redeemed .......... 375,587 275,816 42,062
Payable for investment
securities purchased --- 369,353 101,665
Accrued service fee -
Class B ........... 114,705 114,453 8,808
Accrued transfer agency
and dividend disbursing 23,560 27,934 3,934
Organization expenses
payable ........... 9,778 9,778 9,778
Accrued distribution
fee - Class B ..... 12,828 12,351 1,275
Dividends payable .. --- --- ---
Accrued accounting
services fee ...... 4,167 3,333 833
Prepaid registration
fees payable ...... --- --- ---
Other .............. 17,239 18,498 5,514
------------------------ -----------
Total liabilities 557,864 831,516 173,869
------------------------ -----------
Total net assets $208,319,856$202,557,885 $20,881,006
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 127,479$ 96,461 $ 21,013
Additional paid-in
capital ......... 165,029,890 155,883,631 20,531,701
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... --- --- (33,657)
Accumulated undistributed
net realized gain (loss)
on investments .. 900,581 4,152,342 (391,077)
Net unrealized appreciation
(depreciation) of investments
at end of period 42,261,906 42,425,451 753,026
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $208,319,856$202,557,885 $20,881,006
======================== ===========
Net asset value, redemption
and offering price
per share
Class B Shares ..... $16.34 $21.00 $9.94
Class Y Shares ..... $16.38 $21.04 $9.95
Capital shares outstanding:
Class B Shares 12,742,657 9,646,006 2,100,588
Class Y Shares 5,288 49 723
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996 Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $12,898,594 $23,333,878 $32,398,300
Cash .............. 3,242 527 3,629
Receivables:
Fund shares sold .. 213,150 58,493 102,745
Investment securities
sold ............ 296,653 --- 989,625
Dividends and interest 91,854 399,399 524,300
Unamortized organization
expenses (Note 2) . 632 9,778 9,778
Prepaid registration fees
(Note 2) 3,483 --- ---
Prepaid insurance premium 22 132 212
------------------------ -----------
Total assets 13,507,630 23,802,207 34,028,589
Liabilities ------------ ----------- -----------
Payable for Fund shares
redeemed .......... 18,346 78,310 100,181
Payable for investment
securities purchased 250,000 --- ---
Accrued service fee -
Class B............ 7,481 11,078 19,316
Accrued transfer agency
and dividend disbursing 1,917 3,055 3,684
Organization expenses
payable ........... 632 9,778 9,778
Accrued distribution
fee - Class B ..... 801 1,455 2,079
Dividends payable .. --- 8,645 13,097
Accrued accounting
services fee ...... 833 833 1,667
Prepaid registration
fees payable ...... 3,483 --- ---
Other .............. 1,680 6,523 8,936
------------------------ -----------
Total liabilities 285,173 119,677 158,738
------------------------ -----------
Total net assets $13,222,457 $23,682,530 $33,869,851
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 13,024 $ 23,685 $ 31,855
Additional paid-in
capital ......... 13,338,323 23,849,385 33,905,496
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... 4,882 --- ---
Accumulated undistributed
net realized gain (loss)
on investments .. 189,379 15,837 (557,142)
Net unrealized appreciation
(depreciation) of investments
at end of period (323,151) (206,377) 489,642
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $13,222,457 $23,682,530 $33,869,851
======================== ===========
Net asset value, redemption
and offering price
per share
Class B Shares ..... $10.15 $10.00 $10.63
Class Y Shares ..... $10.16 $10.00 $10.63
Capital shares outstanding:
Class B Shares 1,302,271 2,368,439 3,185,383
Class Y Shares 98 100 92
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended MARCH 31, 1996
Total International
Return Growth Growth
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $ 639,467 $ 2,630,407 $351,268
Dividends ......... 2,146,314 114,232 142,220
----------- ----------- ----------
Total income .... 2,785,781 2,744,639 493,488
----------- ----------- ----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 1,114,538 1,097,047 118,422
Investment management fee 1,051,336 1,180,192 126,515
Service fee - Class B 368,860 361,905 26,938
Transfer agency and
dividend disbursing -
Class B ......... 240,650 281,102 33,641
Registration fees.. 35,011 37,499 24,721
Accounting services fee 40,833 40,000 10,000
Custodian fees .... 14,637 10,763 28,598
Audit fees ........ 15,689 14,373 6,123
Amortization of organization
expenses ........ 6,518 6,518 6,518
Amortization of prepaid
registration fees --- --- ---
Legal fees ........ 7,956 7,753 2,161
Shareholder servicing fee -
Class Y ......... 27 --- 2
Other ............. 59,419 69,019 11,162
------------------------ -----------
Total expenses .. 2,955,474 3,106,171 394,801
------------------------ -----------
Net investment income
(loss) ........ (169,693) (361,532) 98,687
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities...... 2,284,263 5,724,029 (39,113)
Realized net gain (loss)
from foreign currency
transactions ...... --- --- 76,505
Realized net loss on
forward currency and
futures contracts
closed ............ --- --- (83,929)
------------------------ -----------
Realized net gain
(loss) on investments 2,284,263 5,724,029 (46,537)
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ 32,910,995 27,231,115 769,264
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- (9,068)
Unrealized appreciation on
forward currency
contracts during the
period --- --- 89,939
------------------------ -----------
Unrealized appreciation
(depreciation) 32,910,995 27,231,115 850,135
------------------------ -----------
Net gain (loss)
on investments . 35,195,258 32,955,144 803,598
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $35,025,565 $32,593,612 $902,285
======================== ===========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended MARCH 31, 1996
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $281,049 $975,889 $1,813,054
Dividends ......... 27,130 --- ---
------------------------ -----------
Total income .... 308,179 975,889 1,813,054
------------------------ -----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 49,313 117,456 227,879
Investment management fee 52,588 87,085 169,713
Service fee - Class B 17,336 33,446 70,380
Transfer agency and
dividend disbursing -
Class B .......... 12,161 31,635 43,505
Registration fees.. 15,066 26,475 24,817
Accounting services fee 3,333 10,000 20,000
Custodian fees .... 3,732 2,803 4,162
Audit fees ........ 631 5,949 6,896
Amortization of organization
expenses ........ 127 6,518 6,518
Amortization of prepaid
registration fees 17,417 --- ---
Legal fees ........ 295 809 1,864
Shareholder servicing fee -
Class Y ......... --- --- ---
Other ............. (4,822) 6,609 8,992
------------------------ -----------
Total expenses .. 167,177 328,785 584,726
------------------------ -----------
Net investment income
(loss) ........ 141,002 647,104 1,228,328
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities...... 189,379 90,054 416,833
Realized net gain (loss)
from foreign currency
transactions ...... (1,913) --- ---
Realized net loss on
forward currency and
futures contracts
closed ............ --- --- (320,625)
------------------------ -----------
Realized net gain
(loss) on investments 187,466 90,054 96,208
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ (323,151) 99,034 749,744
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- ---
Unrealized appreciation on
forward currency
contracts during the
period --- --- ---
------------------------ -----------
Unrealized appreciation
(depreciation) (323,151) 99,034 749,744
------------------------ -----------
Net gain (loss)
on investments (135,685) 189,088 845,952
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $ 5,317 $836,192 $2,074,280
======================== ===========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1996
Total International
Return Growth Growth
Fund Fund Fund
Increase in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ (169,693)$ (361,532) $ 98,687
Realized net gain (loss)
on investments ... 2,284,263 5,724,029 (46,537)
Unrealized
appreciation
(depreciation) .. 32,910,995 27,231,115 850,135
--------------------------------------
Net increase in net assets
resulting from
operations...... 35,025,565 32,593,612 902,285
------------------------ -----------
Dividends to shareholders:*
From net investment income
Class B ......... --- --- (175,192)
Class Y ......... --- --- ---
In excess of net investment income
Class B .......... --- --- (33,657)
Class Y .......... --- --- ---
From realized net gain on
investment transactions
Class B ......... (498,889) (3,023,159) ---
Class Y ......... --- --- ---
------------------------ -----------
(498,889) (3,023,159) (208,849)
------------------------ -----------
Capital share
transactions
(Note 6)........... 69,102,445 72,304,504 8,999,169
------------------------ -----------
Total increase . 103,629,121 101,874,957 9,692,605
Net Assets
Beginning of period 104,690,735 100,682,928 11,188,401
------------------------ -----------
End of period ...... $208,319,856$202,557,885 $20,881,006
======================== ===========
Undistributed net
investment income $--- $--- ($33,657)
==== ==== =======
*See "Financial Highlights" on pages .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1996
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Increase in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ 141,002 $ 647,104 $ 1,228,328
Realized net gain (loss)
on investments ... 187,466 90,054 96,208
Unrealized
appreciation
(depreciation) .. (323,151) 99,034 749,744
------------------------ -----------
Net increase in net assets
resulting from operations 5,317 836,192 2,074,280
------------------------ -----------
Dividends to shareholders:*
From net investment income
Class B ......... (134,202) (647,092) (1,228,317)
Class Y ......... (5) (12) (11)
In excess of net investment income
Class B .......... --- --- ---
Class Y .......... --- --- ---
From realized net gain on
investment transactions
Class B ......... --- --- ---
Class Y ......... --- --- ---
------------------------ -----------
(134,207) (647,104) (1,228,328)
------------------------ -----------
Capital share
transactions
(Note 6)........... 13,351,347 11,074,676 5,589,817
------------------------ -----------
Total increase . 13,222,457 11,263,764 6,435,769
Net Assets
Beginning of period --- 12,418,766 27,434,082
------------------------ -----------
End of period ...... $13,222,457 $23,682,530 $33,869,851
======================== ===========
Undistributed net
investment income $4,882 $--- $---
====== ==== ====
*See "Financial Highlights" on pages .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1995
<TABLE>
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment income
(loss) ............... $ (33,889) $ 6,511 $ 472,776 $ 1,111,479 $ 413,902
Realized net gain (loss)
on investments ....... (393,447) 2,636,976 (74,217) (654,808) (205,154)
Unrealized appreciation
(depreciation) ....... 6,249,301 13,371,790 (78,479) 1,079,863 203,578
------------ ----------- ---------- ----------- -----------
Net increase in net assets
resulting from operations 5,821,965 16,015,277 320,080 1,536,534 412,326
------------ ----------- ---------- ----------- -----------
Dividends to shareholders from:*
Net investment income --- --- (472,776) (1,111,479) (413,902)
Realized net gain from
investment transactions --- (1,599,535) (9,889) --- ---
------------ ----------- ---------- ----------- -----------
--- (1,599,535) (482,665) (1,111,479) (413,902)
------------ ----------- ---------- ----------- -----------
Capital share transactions** 37,133,483 42,742,909 910,216 2,048,542 907,668
------------ ----------- ---------- ----------- -----------
Total increase ......... 42,955,448 57,158,651 747,631 2,473,597 906,092
Net Assets
Beginning of period ...... 61,735,287 43,524,277 11,671,135 24,960,485 10,282,309
------------ ----------- ---------- ----------- -----------
End of period ............ $104,690,735 $100,682,928 $12,418,766 $27,434,082 $11,188,401
============ ============ =========== =========== ===========
Undistributed net
investment income ... $--- $6,511 $--- $--- $---
==== ====== ==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares ................ 3,945,209 3,125,059 466,132 603,090 243,352
Shares issued from reinvest-
ment of dividends and/or
capital gains
distributions ............ --- 105,331 47,776 101,809 44,248
Shares redeemed ........... (870,169) (365,439) (420,022) (507,544) (190,297)
--------- --------- ------- ------- -------
Increase in outstanding
capital shares .......... 3,075,040 2,864,951 93,886 197,355 97,303
========= ========= ======= ======= =======
Value issued from sale
of shares ............... $47,666,060 $46,616,473 $4,491,826 $6,050,262 $2,259,874
Value issued from reinvest-
ment of dividends and/or
capital gains
distributions ........... --- 1,597,857 460,066 1,014,595 410,904
Value redeemed ............ (10,532,577) (5,471,421) (4,041,676) (5,016,315) (1,763,110)
------------ ----------- ---------- ----------- -----------
Increase in outstanding
capital ................. $37,133,483 $42,742,909 $ 910,216 $2,048,542 $ 907,668
============ =========== ========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.73 $11.99 $11.07 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment income
(loss)........... (0.01) 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. 3.67 .74 .93 1.07
------ ------ ------ ------
Total from investment
operations ....... 3.66 .74 .92 1.09
------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00) (0.00) (0.02)
Distribution from
capital gains ... (0.05) (0.00) (0.00) (0.00)
------ ------ ------ ------
Total distributions. (0.05) (0.00) (0.00) (0.02)
------ ------ ------ ------
Net asset value,
end of period .... $16.34 $12.73 $11.99 $11.07
====== ====== ====== ======
Total return ....... 28.75% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) .......... $208,233$104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 1.99% 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.11% -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 16.78% 16.60% 17.31% 23.97%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $15.32
------
Income from investment
operations:
Net investment
income........... 0.03
Net realized and
unrealized gain
on investments .. 1.03
------
Total from investment
operations ....... 1.06
------
Less dividends from net
investment income (0.00)
------
Net asset value,
end of period .... $16.38
======
Total return ....... 6.92%
Net assets, end of
period (000
omitted) .......... $87
Ratio of expenses
to average net
assets ........... 0.96%*
Ratio of net investment
income to average
net assets ....... 1.04%*
Portfolio turnover
rate ............. 16.78%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $16.90 $14.08 $11.68 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.02) 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 4.49 3.15 2.75 1.79
------ ------ ------ ------
Total from investment
operations ....... 4.47 3.15 2.71 1.77
------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.37) (0.33) (0.31) (0.08)
------ ------ ------ ------
Total distributions (0.37) (0.33) (0.31) (0.09)
------ ------ ------ ------
Net asset value,
end of period .... $21.00 $16.90 $14.08 $11.68
====== ====== ====== ======
Total return ....... 26.57% 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) ......... $202,557$100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.14% 2.23% 2.34% 2.50%
Ratio of net investment
income to average
net assets ....... -0.25% 0.01% -0.97% -0.68%
Portfolio turnover
rate .............. 31.84% 56.30% 69.12% 124.44%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $20.21
------
Income from investment
operations:
Net investment
income........... .04
Net realized and
unrealized gain
on investments .. .79
------
Total from investment
operations ....... .83
------
Less dividends from net
investment income 0.00
------
Net asset value,
end of period .... $21.04
======
Total return ....... 4.11%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.17%*
Ratio of net investment
income to average
net assets ....... 0.78%*
Portfolio turnover
rate ............. 31.84%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993**
------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.36 $9.37 $9.68 $10.00
------ ----- ----- ------
Income from investment
operations:
Net investment
income .......... .08 .36 .34 .20
Net realized and
unrealized gain (loss)
on investments .. .63 (0.01) (0.31) (0.32)
------ ----- ----- ------
Total from investment
operations ....... .71 .35 .03 (0.12)
------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.11) (0.36) (0.26) (0.20)
In excess of net
investment income (.02) (0.00) (0.00) (0.00)
Tax-basis return of
capital.......... (0.00) (0.00) (0.08) (0.00)
------ ----- ----- ------
Total distributions. (0.13) (0.36) (0.34) (0.20)
------ ----- ----- ------
Net asset value,
end of period .... $9.94 $9.36 $9.37 $ 9.68
====== ===== ===== ======
Total return ....... 7.64% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) ......... $20,874$11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.50% 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... 0.63% 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 88.55% 13.33% 34.90% 8.35%
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**The Corporation's inception date is January 29, 1992; however, since the
Fund did not have any investment activity or incur expenses prior to the
date of initial public offering, the per share information is for a capital
share outstanding for the period from September 21, 1992 (initial public
offering) through March 31, 1993. Ratios and the portfolio turnover rate
have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $9.70
------
Income from investment
operations:
Net investment
income........... .02
Net realized and
unrealized gain
on investments .. .23
------
Total from investment
operations ....... .25
------
Less dividends from net
investment income (0.00)
------
Net asset value,
end of period .... $9.95
======
Total return ....... 2.58%
Net assets, end of
period (000
omitted) .......... $7
Ratio of expenses
to average net
assets ........... 1.84%*
Ratio of net investment
income to average
net assets ....... 1.07%*
Portfolio turnover
rate ............. 88.55%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period
from
April 20,
1995
through
March
31, 1996*
---------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
income .......... .16
Net realized and
unrealized gain
on investments... .14
------
Total from investment
operations ........ .30
Less dividends from
net investment
income........... (0.15)
------
Net asset value,
end of period ..... $10.15
======
Total return ....... 3.00%
Net assets, end of
period (000
omitted) ......... $13,221
Ratio of expenses
to average net
assets ............ 2.54%
Ratio of net investment
income to average net
assets ............ 2.14%
Portfolio
turnover rate ..... 75.02%
*The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per share information is for a capital share
outstanding for the period from April 20, 1995 (initial public offering)
through March 31, 1996. Ratios have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $10.23
------
Income from investment
operations:
Net investment
income........... .07
Net realized and
unrealized loss
on investments .. (0.08)
------
Total from investment
operations ....... (0.01)
------
Less dividends from net
investment income (0.06)
------
Net asset value,
end of period .... $10.16
======
Total return ....... -0.25%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.95%*
Ratio of net investment
income to average
net assets ....... 2.34%*
Portfolio turnover
rate ............. 75.02%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $ 9.70 $9.84 $10.06 $10.00
------ ----- ------ ------
Income from investment
operations:
Net investment
income .......... .41 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... .30 (0.13) (0.20) .06
------ ----- ------ ------
Total from investment
operations ....... .71 .26 .15 .24
------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.41) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.01) (0.02) (0.00)
------ ----- ------ ------
Total distributions (0.41) (0.40) (0.37) (0.18)
------ ----- ------ ------
Net asset value,
end of period .... $10.00 $9.70 $ 9.84 $10.06
====== ===== ====== ======
Total return ....... 7.41% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) ......... $23,682$12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.10% 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ........ 4.14% 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 22.08% 29.20% 25.90% 39.64%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $10.16
------
Income from investment
operations:
Net investment
income........... .11
Net realized and
unrealized loss
on investments .. (0.16)
------
Total from investment
operations ....... (0.05)
------
Less dividends from net
investment income (0.11)
------
Net asset value,
end of period .... $10.00
======
Total return ....... -0.49%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.18%*
Ratio of net investment
income to average
net assets ....... 4.70%*
Portfolio turnover
rate ............. 22.08%
*Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------- March 31,
1996 1995 1994 1993*
------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.30 $10.12 $10.53 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .43 .44 .39 .21
Net realized and
unrealized gain
(loss) on
investments ..... .33 .18 (0.28) .53
------ ------ ------ ------
Total from investment
operations ....... .76 .62 .11 .74
------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.43) (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.00) (0.13) (0.00)
------ ------ ------ ------
Total distributions (0.43) (0.44) (0.52) (0.21)
------ ------ ------ ------
Net asset value,
end of period .... $10.63 $10.30 $10.12 $10.53
====== ====== ====== ======
Total return ....... 7.48% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) ......... $33,869$27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.93% 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.05% 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 42.02% 56.92% 18.93% 140.02%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
December 29, 1995
to March 31, 1996
--------------------
Net asset value,
beginning of
period ........... $10.94
------
Income from investment
operations:
Net investment
income........... .12
Net realized and
unrealized loss
on investments .. (0.31)
------
Total from investment
operations ....... (0.19)
------
Less dividends from net
investment income (0.12)
------
Net asset value,
end of period .... $10.63
======
Total return ....... -1.80%
Net assets, end of
period (000
omitted) .......... $1
Ratio of expenses
to average net
assets ........... 1.18%*
Ratio of net investment
income to average
net assets ....... 4.33%*
Portfolio turnover
rate ............. 42.02%
*Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
Note 1 - Significant Accounting Policies
Waddell & Reed Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Corporation issues six classes of capital shares; each class
represents ownership of a separate mutual fund. The assets belonging to each
Fund are held separately by the Custodian. The capital shares of each Fund
represent a pro rata beneficial interest in the principal, net income and
realized and unrealized capital gains or losses of its respective investments
and other assets. The following is a summary of significant accounting policies
consistently followed by the Corporation in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using
pricing systems provided by a major dealer in bonds or by an information
service. Convertible bonds are valued using this pricing system only on
days when there is no sale reported. Stocks which are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations) which provides information on bid and asked or
closing prices quoted by major dealers in such stocks. Restricted
securities and securities for which quotations are not readily available
are valued as determined in good faith in accordance with procedures
established by and under the general supervision of the Corporation's Board
of Directors. Short-term debt securities are valued at amortized cost,
which approximates market. Short-term debt securities denominated in
foreign currencies are valued at amortized cost in that currency.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
4 -- Investment Securities Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translation arise from changes in currency exchange rates. The
Corporation combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. Federal income taxes -- It is the Corporation's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue Code.
In addition, the Corporation intends to pay distributions as required to
avoid imposition of excise tax. Accordingly, provision has not been made
for Federal income taxes. See Note 5 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by each Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards. The following items identified in the period ended March
31, 1996 have been reclassified between accumulated undistributed net
investment income and accumulated undistributed net realized gain on
investment transactions or to additional paid-in capital:
Increase (Decrease)Increase (Decrease)Increase (Decrease)
UndistributedUndistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
----------- -------------------------
Total Return Fund $169,693 --- ($169,693)
Growth Fund 355,021 ($355,021) ---
International Growth 76,505 (76,505) ---
Asset Strategy (1,913) 1,913 ---
Net investment income, net realized gains and net assets were not affected
by these changes.
F. Futures -- See Note 7 -- Futures.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- 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). The original Corporation consisted of five mutual
funds - Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund (formerly known as Global Income Fund.)
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 original 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 the
original mutual funds. These expenses are being amortized and are payable
evenly over 60 months following the date of the initial public offering.
Asset Strategy Fund was incorporated in Maryland on January 31, 1995 and
was inactive (except for matters relating to its organization and registration
as an investment company under the Investment Company Act of 1940 and
registration of shares under the Securities Act of 1933) until April 20, 1995
(the date of the initial public offering).
Asset Strategy Fund had prepaid registration fees in the amount of $20,900
which were advanced to the Corporation by W&R and are an obligation to be paid
by it. These expenses are being amortized and are payable evenly over 12
months.
Asset Strategy Fund's organizational expenses in the amount of $759 were
advanced to the Corporation by W&R and are an obligation to be paid by it.
These expenses are being amortized and are payable evenly over 60 months
following the date of the initial public offering.
NOTE 3 -- Investment Management And Payments To Affiliated Persons
Waddell & Reed Investment Management Company ("WRIMCO"), a wholly-owned
subsidiary of W&R, serves as the Corporation's investment manager. WRIMCO
provides advice and supervises investments for which services it is paid a fee
computed on each Fund's net assets as of the close of business each day at the
following annual rates: Total Return Fund - 0.71% of net assets, Growth Fund -
0.81% of net assets, International Growth Fund - 0.81% of net assets, Asset
Strategy Fund - 0.81% of net assets, Limited-Term Bond Fund - 0.56% of net
assets, and Municipal Bond Fund - 0.56% 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 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
For Class B shares, each Fund pays WARSCO a monthly 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. For Class Y shares, each Fund pays
WARSCO a monthly fee equal to one-twelfth of .15 of 1% of the average daily net
assets of that Class for the preceding month. Each Fund also reimburses W&R,
WRIMCO and WARSCO for certain out-of-pocket costs.
The Corporation has adopted a 12b-1 plan for both Class B and Class Y
shares. Under the Distribution and Service Plan for the Class B shares, 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% of the particular Fund's Class B net asset value for distribution
services and distribution expenses including commissions paid by the Distributor
to its sales representatives and managers and (ii) up to 0.25% of the particular
Fund's Class B net asset value may be paid to reimburse the Distributor for
continuing payments made to the Distributor's representatives and managers, its
administrative costs in overseeing these payments, and the expenses of WARSCO in
providing certain personal services to shareholders. During the period ended
March 31, 1996, the Distributor received $3,603,520 in 12b-1 payments. During
this same period W&R paid sales commissions of $4,127,299.
Under a Distribution and Service Plan for Class Y shares adopted by the
Corporation pursuant to Rule 12b-1, with respect to each Fund, the Corporation
pays the W&R daily a distribution and/or service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class Y net asset value. During the period
ended March 31, 1996, the Distributor received no 12b-1 payments on Class Y
shares.
For Class B shares, a contingent deferred sales charge may be assessed
against a shareholder's redemption amount and paid to the Distributor, W&R. The
purpose of the deferred sales charge is to compensate the Distributor for the
costs incurred by the Distributor in connection with the sale of a Fund's
shares. The amount of the deferred sales charge will be the following percent
of the total amount invested during a calendar year to acquire the shares or the
value of the shares redeemed, whichever is less. Redemption at any time during
the calendar year of investment and the first full calendar year after the
calendar year of investment, 3%; the second full calendar year, 2%; the third
full calendar year, 1%; and thereafter, 0%. All investments made during a
calendar year shall be deemed as a single investment during the calendar year
for purposes of calculating the deferred sales charge. The deferred sales
charge will not be imposed on shares representing payment of dividends or
distributions or on amounts which represent an increase in the value of the
shareholder's account resulting from capital appreciation above the amount paid
for shares purchased during the deferred sales charge period. During the period
ended March 31, 1996, the Distributor received $676,462 in deferred sales
charges.
The Corporation paid Directors' fees of $12,789.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 1996 are
summarized as follows:
Total International
Return Growth Growth
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $ 78,889,972$ 73,016,982$16,133,375
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 140,730,740503,045,01537,180,296
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 23,107,86232,347,21110,409,835
Proceeds from maturities
and sales of U.S.
Government securities --- --- 481,973
Proceeds from maturities
and sales of short-term
securities 130,043,918477,004,33333,638,138
Asset Limited- Municipal
Strategy Term Bond
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $ 7,661,090$ 9,570,568$14,396,515
Purchases of U.S. Government
securities 2,976,752 4,314,018 ---
Purchases of short-term
securities 33,691,37731,261,00616,649,282
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 2,996,364 1,902,79012,008,266
Proceeds from maturities
and sales of U.S.
Government securities --- 1,294,788 ---
Proceeds from maturities
and sales of short-term
securities 28,424,97631,127,78414,842,383
For Federal income tax purposes, cost of investments owned at March 31,
1996 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $164,181,488 $43,889,774 $1,632,346 $42,257,428
Growth Fund 159,619,684 48,543,843 6,118,392 42,425,451
International Growth
Fund 20,007,311 1,666,876 917,051 749,825
Asset Strategy Fund 13,221,745 186,490 509,641 (323,151)
Limited-Term Bond Fund23,540,255 82,870 289,247 (206,377)
Municipal Bond Fund 32,004,483 834,879 441,062 393,817
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Growth Fund and Asset Strategy Fund
realized capital gain net income of $5,724,030 and 189,379, respectively, during
the year ended March 31, 1996. For Federal income tax purposes, Total Return
Fund and Limited-Term Bond Fund realized capital gain net income of $1,403,948
and $15,837, respectively, during the year ended March 31, 1996, which includes
utilization of capital loss carryforwards of $723,114 and $26,545, respectively.
For Federal income tax purposes, International Growth Fund realized capital
gains of $75,989 during the year ended March 31, 1996, which were entirely
offset by utilization of capital loss carryforwards. Remaining prior year
capital loss carryforwards of International Growth Fund totaled $194,681 at
March 31, 1996, and are available to offset future realized capital gain net
income through March 31, 2003. For Federal income tax purposes, Municipal Bond
Fund realized capital losses of $129,051 during the year ended March 31, 1996,
and these losses are available to offset future realized capital gain net income
through March 31, 2004. Remaining prior year capital loss carryforwards of
Municipal Bond Fund totaled $333,723 at March 31, 1996, and are available to
offset future realized capital gain net income through March 31, 2003. A
portion of the capital gain net income of Total Return Fund and Growth Fund was
paid to shareholders during the year ended March 31, 1996. Remaining capital
gains of these Funds, as well as the capital gain net income of Limited-Term
Bond Fund and Asset Strategy Fund will be distributed to shareholders.
Internal Revenue Code regulations permit a Fund to defer, into its next
fiscal year, net capital losses incurred from November 1 to the end of its
fiscal year ("post-October losses"). The International Growth Fund deferred
post-October losses of $191,588.
NOTE 6 -- Commencement of Multiclass Operations
On December 2, 1995, each Fund within the Corporation was authorized to
offer investors a choice of two classes of shares, Class B and Class Y, each of
which has equal rights as to assets and voting privileges with respect to each
Fund. Class Y shares are not subject to a contingent deferred sales charge on
redemptions and have separate fee structures for transfer agency and dividend
disbursement services and Rule 12b-1 Service Plan fees. A comprehensive
discussion of the terms under which shares of either class are offered is
contained in the prospectus and the Statement of Additional Information for the
Corporation. All of the funds commenced multiclass operations on December 29,
1995.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
Transactions in capital stock for the fiscal year ended March 31, 1996 are
summarized below.
Total International
Return Growth Growth
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 5,512,195 4,325,372 1,097,607
Class Y ............ 5,288 49 723
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 32,501 151,221 22,332
Class Y ............ --- --- ---
Shares redeemed:
Class B ............ (1,027,718) (787,512) (214,469)
Class Y ............ --- --- ---
--------- --------- -------
Increase in outstanding
capital shares:
Class B ............ 4,516,978 3,689,081 905,470
Class Y ............ 5,288 49 723
--------- --------- -------
Total for Fund .... 4,522,266 3,689,130 906,193
========= ========= =======
Value issued from sale
of shares:
Class B ............ $83,845,520 $84,517,378 $10,888,190
Class Y ............ 81,853 1,000 7,109
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 498,248 3,019,878 212,070
Class Y ............ --- --- ---
Value redeemed:
Class B ............ (15,323,176) (15,233,752) (2,108,200)
Class Y ............ --- --- ---
----------- ----------- ----------
Increase in outstanding
capital:
Class B ............ 69,020,592 72,303,504 8,992,060
Class Y ............ 81,853 1,000 7,109
----------- ----------- ----------
Total for Fund .. $69,102,445 $72,304,504 $8,999,169
=========== =========== ==========
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 1,509,865 1,575,447 959,634
Class Y ............ 97 100 92
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 13,133 62,029 104,734
Class Y ............ 1 2 2
Shares redeemed:
Class B ............ (220,727) (549,241) (542,901)
Class Y ............ --- --- ---
--------- --------- -------
Increase in outstanding
capital shares:
Class B ............ 1,302,271 1,088,235 521,467
Class Y ............ 98 102 94
--------- --------- -------
Total for Fund .... 1,302,369 1,088,337 521,561
========= ========= =======
Value issued from sale
of shares:
Class B ............ $15,469,968 $15,955,031 $10,219,694
Class Y ............ 1,000 1,000 1,000
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 134,044 622,642 1,108,944
Class Y ............ 5 11 11
Value redeemed:
Class B ............ (2,253,670) (5,504,008) (5,739,832)
Class Y ............ --- --- ---
----------- ----------- ----------
Increase in outstanding
capital:
Class B ............ 13,350,342 11,073,665 5,588,806
Class Y ............ 1,005 1,011 1,011
----------- ----------- ----------
Total for Fund .. $13,351,347 $11,074,676 $5,589,817
=========== =========== ==========
NOTE 7 -- Futures
Upon entering into a futures contract, the Fund is required to deposit, in
a segregated account, an amount of cash or U.S. Treasury Bills equal to a
varying specified percentage of the contract amount. This amount is known as
the initial margin. Subsequent payments ("variation margins") are made or
received by the Fund each day, dependent on the daily fluctuations in the value
of the underlying debt security or index. These changes in the variation
margins are recorded by the Fund as unrealized gains or losses. Upon the
closing of the contracts, the cumulative net change in the variation margin is
recorded as realized gain or loss. The Fund uses futures to attempt to reduce
the overall risk of its investments.
<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 six mutual funds
comprising Waddell & Reed Funds, Inc. (the "Corporation") at March 31, 1996, the
results of its operations, the changes in its net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 10, 1996
<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, 1996
Statements of Assets and Liabilities
For the year ended March 31, 1996
Statements of Operations
For each of the two years in the period ended March 31, 1996
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1996
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedules
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation filed February 3, 1995 as EX-99.B1-wrartres
to Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A*
Articles Supplementary, filed October 3, 1995 as EX-99.B1-wrartsup to
Post Effective Amendment No. 6 to the Registration Statement on Form
N-1A*
(2) Bylaws, as amended, attached hereto as EX-99.B2-wrbylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of Incorporation of
the Registrant, filed February 3, 1995 as EX-99.B1-wrartres to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-1A*;
Article II, Article VII, Article VIII and Article XI of the Bylaws of
the Registrant, attached hereto as EX-99.B2-wrbylaw
(5) Investment Management Agreement filed February 3, 1995 as EX-99.B5-
wrima to Post-Effective Amendment No. 4 to the Registration Statement
on Form N-1A*
(6) Underwriting Agreement filed June 27, 1995 as EX-99.B6-wrua to Post-
Effective Amendment No. 5 to the Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, filed October 3, 1995 as EX-99.B8-
wrca to Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A*
(9) Shareholder Servicing Agreement, as amended, attached hereto as EX-
99.B9-wrssa
Accounting Services Agreement filed October 3, 1995, as EX-99.B9-wrasa
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A*
Fund NAV Application filed February 3, 1995 as EX-99.B9-wrnavapp to
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A*
Fund Class B Application, filed October 3, 1995, as EX-99.B9-wrappcb
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A*
Fund Class Y Application, filed October 3, 1995, as EX-99.B9-wrappcy
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A*
Class Y Letter of Understanding, attached hereto as EX-99.B9-wrlou
(10) Not Applicable
(11) Consent of Independent Accountants, attached hereto as EX-99.B11-
wrconsnt
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc. filed June 2,
1992 as Exhibit (b)(13) to Pre-Effective Amendment No. 1 to the
- ---------------------------------
*Incorporated herein by reference
initial Registration Statement on Form N-1A*. Agreement with Initial
Shareholder of Waddell & Reed Funds, Inc. Asset Strategy Fund, filed
on June 27, 1995 as EX-99.B13-wragree to Post-Effective Amendment No.
5 to the 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
- ---------------------------------
*Incorporated herein by reference
United Asset Strategy Fund, Inc.*
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 Class B shares, filed October 3, 1995 as
EX-99.B15-wrdspcb to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A
Distribution and Service Plan Class Y shares, filed October 3, 1995 as
EX-99.B15-wrdspcy to Post-Effective Amendment No. 6 to the
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 quotations for Class B and Class Y
shares, attached hereto as EX-99.B16-wryield
(17) Financial Data Schedules, attached hereto as EX-27.B17-wrfds1, EX-
27.B17-wrfds2, EX-27.B17-wrfds3, EX-27.B17-wrfds4, EX-27.B17-wrfds5
and EX-27.B17-wrfds6
(18) Multiple Class Plan, attached hereto as EX-99.B18-wrmcp
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 March 31, 1996
-------------- ------------------------------
Class B Common 34,851
Class Y Common 2
27. Indemnification
---------------
Reference is made to Article 10.2 of the Registrant's Articles of
Incorporation, filed February 3, 1995 as EX-99.B1-wrartres to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-1A*;
Article IX of the Bylaws, attached hereto as EX-99.B2-wrbylaw; and Article
V of the Underwriting Agreement filed June 27, 1995 as EX-99.B6-wrua to the
Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A*,
each of which provides indemnification. Also refer to Section 2-418 of the
- ---------------------------------
*Incorporated herein by reference
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
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.
United Asset Strategy Fund, 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.
- ---------------------------------
*Incorporated herein by reference
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. Undertakings
--------------
(a) Not applicable
(b) Not applicable
(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(b) 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 27th day
of June, 1996.
WADDELL & REED FUNDS, 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 June 27, 1996
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director June 27, 1996
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer June 27, 1996
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and June 27, 1996
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director June 27, 1996
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director June 27, 1996
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director June 27, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director June 27, 1996
- ------------------- ----------------
Linda Graves
Director
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director June 27, 1996
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director June 27, 1996
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director June 27, 1996
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director June 27, 1996
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director June 27, 1996
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director June 27, 1996
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
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. AND WADDELL & REED FUNDS, 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/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and 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 or amendment or supplement thereto; 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: April 24, 1996 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board April 24, 1996
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director April 24, 1996
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer April 24, 1996
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and April 24, 1996
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director April 24, 1996
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director April 24, 1996
- -------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director April 24, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves Director April 24, 1996
- -------------------- ----------------
Linda Graves
Director
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director April 24, 1996
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director April 24, 1996
- -------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director April 24, 1996
- -------------------- ----------------
Doyle Patterson
/s/Eleanor Schwartz Director April 24, 1996
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director April 24, 1996
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director April 24, 1996
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
Ex-99.B2-wrbylaw
WADDELL & REED FUNDS, INC.
BY-LAWS
(as Amended)
ARTICLE I
NAME OF CORPORATION, LOCATION OF OFFICES
AND SEAL
Section 1.01. Name: The name of the Corporation is Waddell & Reed
Funds, Inc.
Section 1.02. Principal Offices: The principal office of the
Corporation in the State of Maryland shall be located in the City of Baltimore.
The corporation may establish and maintain such other offices and places of
business as the Board of Directors may, from time to time, determine.
Section 1.03. Seal: The corporate seal of the Corporation shall be
circular in form and shall bear the name of the Corporation, the year of its
incorporation, and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any officer or director of the Corporation shall have
authority to affix the corporate seal of the Corporation to any document
requiring the same.
ARTICLE II
STOCKHOLDERS
Section 2.01. Annual Meetings: There shall be no stockholders'
meetings for the election of directors and the transaction of other proper
business except as required by law or as hereinafter provided.
Section 2.02. Special Meetings: Special meetings of the stockholders
may be called at any time by the chairman of the board, the president or a vice-
president, or by a majority of the Board of Directors. Special meetings of the
stockholders shall be called by the secretary upon the written request of the
holders of shares entitled to vote not less than 10% of all the shares entitled
to be voted at such meeting, provided that (a) such request shall state the
purposes of such meeting and the matters proposed to be acted on, and (b) the
stockholders requesting such meeting shall have paid to the Corporation the
reasonably estimated cost of preparing and mailing the notice thereof, which the
secretary shall determine and specify to such stockholders. No special meeting
need be called upon the request of the holders of shares entitled to vote less
than a majority of all the shares entitled to be voted at such meeting to
consider any matter which is substantially the same as a matter voted upon at
any special meeting of the stockholders held during the preceding 12 months.
Section 2.03. Place of Meetings: All stockholders' meetings shall be
held at such place within the United States as designated by the Board of
Directors in each notice or waiver of notice of the meeting, and the Corporation
may keep the books of the Corporation at any other place within the United
States as the Board of Directors may from time to time determine.
Section 2.04. Notice of Meetings: The secretary shall cause notice
of the place, date and hour, and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, to be mailed, not less than 10 nor
more than 90 days before the date of the meeting, to each stockholder entitled
to vote at such meeting, at his or her address as it appears on the records of
the Corporation at the time of such mailing. Notice of any stockholders'
meeting need not be given to any stockholder who shall sign a written waiver of
such notice whether before or after the time of such meeting which waiver shall
be filed with the record of such meeting, or to any stockholder who shall attend
such meeting in person or by proxy. Notice of adjournment of a stockholders'
meeting to another time or place need not be given, if such time and place are
announced at the meeting.
Section 2.05. Voting - In General: At every stockholders' meeting
each stockholder shall be entitled to one vote for each share and a fractional
vote for each fraction of a share of stock of the Corporation validly issued and
outstanding and held by such stockholder, except that no shares held by the
Corporation shall be entitled to a vote. Except as otherwise specifically
provided in the Articles of Incorporation or these By-Laws or as required by
provisions of the Investment Company Act of 1940, as amended from time to time
("1940 Act"), all matters shall be decided by a vote of the majority of the
votes validly cast at a meeting at which a quorum is present. The vote upon any
question shall be by ballot whenever requested by any person entitled to vote,
but, unless such a request is made, voting may be conducted in any way approved
by the meeting.
Section 2.06. Stockholders Entitled to Vote: If, pursuant to Section
8.05 hereof, a record date has been fixed for the determination of stockholders
entitled to notice of or to vote at any stockholders' meeting, each stockholder
of the Corporation shall be entitled to vote, in person or by proxy, each share
of stock and fraction of a share of stock standing in his or her name on the
books of the Corporation on such record date and outstanding at the time of the
meeting. If no record date has been fixed for the determination of
stockholders, the record date for the determination of stockholders entitled to
notice of or to vote at a meeting of stockholders shall be (a) at the close of
business (i) on the day ten days before the day on which notice of the meeting
is mailed or (ii) on the day 90 days before the meeting, whichever is the closer
date to the meeting; or, (b) if notice is waived by all stockholders, at the
close of business on the tenth day next preceding the day on which the meeting
is held.
Section 2.07. Voting - Proxies: A stockholder may vote the stock he
or she owns of record by written proxy executed by the stockholder himself or
herself or by his or her duly authorized attorney in fact. No proxy shall be
voted after eleven months from its date unless it provides for a longer period.
Each proxy shall be dated, but need not be sealed, witnessed or acknowledged.
Proxies shall be delivered to the secretary before being voted. A proxy with
respect to stock held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the
Corporation receives from any one of them written notice to the contrary and a
copy of the instrument or order which so provides. A proxy purporting to be
executed by or on behalf of a stockholder shall be deemed valid unless
challenged at or prior to its exercise.
Section 2.08. Organization: At every meeting of stockholders, the
president, or in his or her absence, a vice-president, or in the absence of any
of the foregoing officers, a chairman chosen by majority vote of the
stockholders present in person or by proxy and entitled to vote thereat, shall
act as chairman. The secretary, or in his or her absence, an assistant
secretary, shall act as secretary at all meetings of stockholders.
Section 2.09. Quorum: Except as otherwise provided in the Articles
of Incorporation, the presence at any stockholders' meeting, in person or by
proxy, of stockholders entitled to cast one third of the votes thereat shall be
necessary and sufficient to constitute a quorum for the transaction of business.
Section 2.10. Absence of Quorum: In the absence of a quorum, the
holders of a majority of the shares present at the meeting in person or by
proxy, or, if no stockholder entitled to vote is present thereat in person or by
proxy, any officer present thereat entitled to preside or act as secretary of
such meeting, may adjourn the meeting without determining the date of the new
meeting, or, from time to time, without further notice to a date not more than
120 days after the original record date. Any business that might have been
transacted at the meeting originally called may be transacted at any such
adjourned meeting at which a quorum is present.
Section 2.11. Stock Ledger and List of Stockholders: It shall be the
duty of the assistant secretary of the Corporation or such other person or
entity named by the Board of Directors to cause an original or duplicate stock
ledger to be maintained at the office of the Corporation's transfer agent. Such
stock ledger may be in written form or any other form capable of being converted
into written form within a reasonable time for visual inspection. Any one or
more persons, each of whom has been a stockholder of record of the Corporation
for more than six months next preceding such request, who owns in the aggregate
5% or more of the outstanding capital stock of the Corporation, may submit
(unless the Corporation at the time of the request maintains a duplicate stock
ledger at its principal office in Maryland) a written request to any officer of
the Corporation or its resident agent in Maryland for a list of the stockholders
of the Corporation. Within 20 days after such a request, there shall be
prepared and filed at the Corporation's principal office in Maryland a list
containing the names and addresses of all stockholders of the Corporation and
the number of shares of each class held by each stockholder, certified as
correct by an officer of the Corporation, by its stock transfer agent, or by its
registrar.
Section 2.12. Action Without Meeting: Any action to be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01. Number and Term of Office: The Board of Directors
shall consist of sixteen directors, which number may be increased or decreased
by a resolution of a majority of the entire Board of Directors; provided that
the number of directors shall not be less than three nor more than seventeen;
and further provided that if there is no stock outstanding the number of
directors may be less than three but not less than one, and if there is stock
outstanding and so long as there are less than three stockholders, the number of
directors may be less than three but not less than the number of stockholders.
Each director (whenever selected) shall hold office until his or her successor
is elected and qualified or until his or her earlier death, resignation or
removal.
Section 3.02. Qualification of Directors: Except for the initial
Board of Directors, at least one of the members of the Board of Directors shall
be a person who is not an interested person of the Corporation, as defined in
the 1940 Act.
Section 3.03. Election of Directors: Initially the director or
directors of the Corporation shall be that person or those persons named as such
in the Articles of Incorporation. Thereafter, except as otherwise provided in
Section 3.04 and 3.05 hereof, the directors shall be elected by the stockholders
as required by the General Corporation Law of the State of Maryland, the 1940
Act and other governing laws. A plurality of all the votes cast at a meeting at
which a quorum is present in person or by proxy is sufficient to elect a
director.
Section 3.04. Removal of Directors: At any stockholders' meeting
duly called, provided a quorum is present, any director may be removed (either
with or without cause) by the vote of the holders of a majority of the shares
represented at the meeting, and at the same meeting a duly qualified person may
be elected in his or her stead by a majority of the votes validly cast.
Section 3.05. Vacancies and Newly Created Directorships: If any
vacancies shall occur in the Board of Directors by reason of death, resignation,
removal or otherwise, or if the authorized number of directors shall be
increased, the directors then in office shall continue to act, and such
vacancies (if not previously filled by the stockholders) may be filled by a
majority of the directors then in office, although less than a quorum, except
that a newly created directorship may be filled only by a majority vote of the
entire Board of Directors, provided that in either case immediately after
filling such vacancy, at least two-thirds of the directors then holding office
shall have been elected to such office by the stockholders of the Corporation.
In the event that at any time, other than the time preceding the first
stockholders' meeting, less than a majority of the directors of the Corporation
holding office at that time were so elected by the stockholders, a meeting of
the stockholders shall be held promptly and in any event within 60 days for the
purpose of electing directors to fill any existing vacancies in the Board of
Directors unless the Securities and Exchange Commission shall by order extend
such period.
Section 3.06. General Powers:
(a) The property, affairs and business of the Corporation shall be managed
by or under the direction of the Board of Directors, which may exercise all the
powers of the Corporation except those powers vested solely in the stockholders
of the Corporation by statute, by the Articles of Incorporation, or by these By-
Laws.
(b) All acts done by any meeting of the directors or by any person acting
as a director, so long as his or her successor shall not have been duly elected
or appointed, shall, notwithstanding that it be afterwards discovered that there
was some defect in the election of the directors or of such person acting as
aforesaid or that they or any of them were disqualified, be as valid as if the
directors or such other person, as the case may be, had been duly elected and
were or was qualified to be directors or a director of the Corporation.
Section 3.07. Power to Issue and Sell Stock: The Board of Directors
may from time to time issue and sell or cause to be issued and sold any of the
Corporation's authorized shares to such persons and for such consideration as
the Board of Directors shall deem advisable, subject to the provisions of
Article Sixth of the Articles of Incorporation.
Section 3.08. Power to Declare Dividends and/or distributions:
(a) The Board of Directors, from time to time as it may deem advisable,
may declare and pay dividends in shares of the Fund, cash or other property of
the Corporation, as determined by resolution of the Board of Directors out of
any source available for dividends and/or distributions, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
(b) The Board of Directors shall cause to be accompanied by a written
statement any dividend payment wholly or partly from any source other than:
(i) the Corporation's accumulated undistributed net income (determined in
accordance with good accounting practice and the rules and regulations
of the Securities and Exchange Commission then in effect) and not
including profits or losses realized upon the sale of securities or
other properties; or
(ii) the Corporation's net income so determined for the current or
preceding fiscal year. Such statement shall adequately disclose the
source or sources of such payment and the basis of calculation, and
shall be in such form as the Securities and Exchange Commission may
prescribe.
Section 3.09. Annual and Regular Meetings: The annual meeting of the
Board of Directors for choosing officers and transacting other proper business
shall be held at such time and place as the Board may determine. The Board of
Directors from time to time may provide by resolution for the holding of regular
meetings and fix their time and place within or outside the State of Maryland.
Except as otherwise provided under the 1940 Act, notice of such annual and
regular meetings need not be given, provided that notice of any change in the
time or place of such meetings shall be sent promptly to each director not
present at the meeting at which such change was made in the manner provided for
notice of special meetings. Except as otherwise provided under the 1940 Act,
members of the Board of Directors or any committee designated thereby may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
Section 3.10. Special Meetings: Special meetings of the Board of
Directors shall be held whenever called by the chairman of the board, the
president or a vice-president or by any two directors, at the time and place
within or outside the State of Maryland specified in the respective notices or
waivers of notice of such meetings.
Section 3.11. Notice: Except as otherwise provided, notice of any
special meeting shall be given by the secretary to each director, by mailing to
him or her, postage prepaid, addressed to him or her at his or her address as
registered on the books of the Corporation or, if not so registered, at his or
her last known address, a written or printed notification of such meeting at
least two days before the meeting, or by delivering such notice to him or her at
least two days before the meeting, or by sending such notice by facsimile
transmission to him or her at least at least two days before the meeting, or by
sending to him or her at least 24 hours before the meeting, by prepaid telegram,
addressed to him or her at his or her said registered address, if any, or if he
or she has no such registered address, at his or her last known address, notice
of such meeting.
Section 3.12. Waiver of Notice: No notice of any meeting need be
given to any director who attends such meeting in person or to any director who
waives notice of such meeting in writing (which waiver shall be filed with the
records of such meeting), whether before or after the time of the meeting.
Section 3.13. Quorum and Voting: At all meetings of the Board of
Directors the presence of a majority or more of the number of directors them in
office shall constitute a quorum for the transaction of business, provided that
there shall be present no fewer than two directors except when there is no stock
outstanding, at which time the initial director will constitute a quorum. In
the absence of a quorum, a majority of the directors present may adjourn the
meeting, from time to time, until a quorum shall be present. The action of a
majority of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors unless the concurrence of a
greater proportion is required for such action by law, by the Articles of
Incorporation or by these By-Laws.
Section 3.14. Compensation: Each director may receive such
remuneration for his or her services as shall be fixed from time to time by
resolution of the Board of Directors.
Section 3.15. Action Without a Meeting: Except as otherwise provided
under the 1940 Act, any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting if written consents
thereto are signed by all members of the Board and such written consents are
filed with the records of the meetings of the Board.
ARTICLE IV
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 4.01. How Constituted: By resolution adopted by the Board of
Directors, the Board may designate an executive committee, consisting of not
less than two directors.
Section 4.02. Powers of the Executive Committee: Except as further
limited by the Board of Directors, when the Board of Directors is not in session
the executive committee shall have and may exercise all powers of the Board of
Directors in the management of the business and affairs of the Corporation that
may lawfully be exercised by an executive committee, except the power to declare
a dividend, to authorize the issuance of stock, to recommend to stockholders any
matter requiring stockholders' approval, to amend the By-Laws, or to approve any
merger or share exchange which does not require shareholder approval.
Section 4.03. Proceedings, Quorum and Manner of Acting: In the
absence of an appropriate resolution of the Board of Directors, the executive
committee and any committee appointed under section 4.04 may adopt such rules
and regulations governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum shall not be less than
two directors. In the absence of any member of any such committee, the members
thereof present at any meeting, whether or not they constitute a quorum, may
appoint a member of the Board of Directors to act in the place of such absent
member. All action by any committee shall be reported to the Board of Directors
at its next meeting following such action.
Section 4.04. Other Committees: The Board or Directors may appoint
other committees, each consisting of one or more persons, who need not be
directors. Each such committee shall have such powers and perform such duties
as may be assigned to it from time to time by the Board of Directors, but shall
not exercise any power which may lawfully by exercised only by the Board of
Directors of a committee thereof.
ARTICLE V
OFFICERS
Section 5.01. General: The officers of the Corporation shall be a
president, one or more vice-presidents, a secretary and a treasurer. The Board
of Directors may elect, but shall not be required to elect, a chairman of the
board and a comptroller.
Section 5.02. Election, Term of Office and Qualifications: The
officers of the Corporation (except those appointed pursuant to Section 5.07
hereof) shall be chosen by the Board of Directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting. If any officers are not chosen at
any annual meeting, such officers may be chosen at any subsequent regular or
special meeting of the Board. Except as provided in Sections 5.03, 5.04 and
5.05 hereof, each officer chosen by the Board of Directors shall hold office
until the next annual meeting of the Board of Directors and until his or her
successor shall have been chosen and qualified. The chairman of the board and
the president shall be chosen from among the directors of the Corporation and
may each hold such office only so long as he or she continues to be a director.
No other officer need be a director. Any person may hold one or more offices of
the Corporation except that the president may not hold the office of vice
president, the secretary may not hold the office of assistant secretary, and the
treasurer may not hold the office of assistant treasurer; provided further that
a person who holds more than one office may not act in more than one capacity to
execute, acknowledge or verify an instrument required by law to be executed,
verified or acknowledged by more than one officer.
Section 5.03. Resignation: Any officer may resign his or her office
at any time by delivering a written resignation to the Board of Directors, the
chairman of the board, the president, the secretary, or any assistant secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 5.04. Removal: Any officer may be removed from office
whenever in the Board's judgment the best interest of the Corporation will be
served thereby, by the vote of a majority of the Board of Directors given at the
regular meeting or any special meeting called for such purpose. In addition,
any officer or agent appointed in accordance with the provisions of Section 5.07
hereof may be removed, either with or without cause, by any officer upon whom
such power of removal shall have been conferred by the Board of Directors.
Section 5.05. Vacancies and Newly Created Offices: If any vacancy
shall occur in any office by reason of death, resignation, removal,
disqualification or other cause, or if any new office shall be created, such
vacancies or newly created offices may be filled by the Board of Directors at
any regular or special meeting or, in the case of any office created pursuant to
section 5.07 hereof, by any officer upon whom such power shall have been
conferred by the Board of Directors.
Section 5.06. Powers: The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may be assigned to them from time to time by the
Board of Directors or the executive committee.
Section 5.07. Subordinate Officers: The Board of Directors from time
to time may appoint such other officers or agents as it may deem advisable,
including one or more assistant treasurers and one or more assistant
secretaries, each of whom shall have such title, hold office for such period,
have such authority and perform such duties as the Board of Directors may
determine. The Board of Directors from time to time may delegate to one or more
officers or agents the power to appoint any such subordinate officers or agents
and to prescribe their respective rights, terms of office, authorities and
duties.
Section 5.08. Remuneration: The salaries or other compensation of
the officers of the Corporation shall be fixed from time to time by resolution
of the Board of Directors, except that the Board of Directors may by resolution
delegate to any person or group of persons the power to fix the salaries or
other compensation of any officers or agents.
Section 5.09. Surety Bonds: The Board of Directors may require any
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the 1940 Act, and the rules and regulations of
the Securities and Exchange Commission) to the Corporation in such sum and with
such surety or sureties as the Board of Directors may determine, conditioned
upon the faithful performance of his or her duties to the Corporation, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that may come into his or her hands.
ARTICLE VI
CUSTODY OF SECURITIES
Section 6.01. Employment of a Custodian: The Corporation shall place
and at all times maintain in the custody of a custodian (including any sub-
custodian for the custodian) all funds, securities and similar investments owned
by the Corporation in accordance with the applicable terms of the 1940 Act. The
custodian (and any sub-custodian) shall be a bank or similar financial
institution having not less than $2,000,000 aggregate capital, surplus and
undivided profits and shall be appointed from time to time by the Board of
Directors, which shall fix its remuneration.
Section 6.02. Action Upon Termination of Custodian Agreement: Upon
termination of a custodian agreement or inability of the custodian to continue
to serve, the Board of Directors shall promptly appoint a successor custodian,
but in the event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Board of Directors shall call as
promptly as possible a special meeting of the stockholders to determine whether
the Corporation shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding shares of
stock of the Corporation, the custodian shall deliver and pay over all property
of the Corporation held by it as specified in such vote.
Section 6.03. Other Arrangements: The Corporation may make such
other arrangements for the custody of its assets (including deposit
arrangements) as may be required by any applicable law, rule or regulation.
ARTICLE VII
EXECUTION OF INSTRUMENTS, VOTING OF SECURITIES
Section 7.01. General: Subject to the provisions of Sections 5.07,
7.02 and 8.03 hereof, all deeds, documents, transfers, contracts, agreements and
other instruments requiring execution by the Corporation shall be signed by the
president or a vice president and by the treasurer or secretary or an assistant
treasurer or an assistant secretary, or as the Board of Directors may otherwise,
from time to time, authorize. Any such authorization may be general or confined
to specific instances.
Section 7.02. Checks, Notes, Drafts, Etc.: So long as the
Corporation shall employ a custodian to keep custody of the cash and securities
of the Corporation, all checks and drafts for the payment of money by the
Corporation may be signed in the name of the Corporation by the custodian.
Except as otherwise authorized by the Board of Directors, all requisitions or
orders for the assignment of securities standing in the name of the custodian or
its nominee, or for the execution of powers to transfer the same, shall be
signed in the name of the Corporation by the president or a vice president and
by the treasurer or an assistant treasurer. Promissory notes, checks or drafts
payable to the Corporation may be endorsed only to the order of the custodian or
its nominee and only by the treasurer or president or a vice president or by
such other person or persons as shall be authorized by the Board of Directors.
Section 7.03. Voting of Securities: Unless otherwise ordered by the
Board of Directors, the president or any vice president shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any company in which the Corporation may hold stock. At any
such meeting such officer shall possess and may exercise (in person or by proxy)
any and all rights, powers and privileges incident to the ownership of such
stock. The Board of Directors may by resolution from time to time confer like
powers upon any other person or persons.
ARTICLE VIII
CAPITAL STOCK
Section 8.01. Share Certificates: Certificates for shares of the
capital stock of the Corporation shall not be issued unless otherwise determined
pursuant to a resolution of the Board of Directors. If issued, certificates
shall be in such form as the Board of Directors shall approve and shall be
numbered and shall be entered in the books of the Corporation as they are
issued. They shall exhibit the holder's name and certify the number of shares
owned by him or her and shall be signed by, or in the name of the Corporation
by, the president or a vice-president and the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation;
provided, however, that where any certificate is signed by a transfer agent or
assistant transfer agent or by a transfer clerk acting on behalf of the
Corporation, the signature of any such president, vice-president, treasurer,
assistant treasurer, secretary or assistant secretary may be facsimile, printed
or engraved. If any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any certificate or
certificates shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates shall nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures shall have been used
thereon had not ceased to be such officer or officers or the Corporation.
Section 8.02. Transfer of Capital Stock:
(a) Transfers of shares of the capital stock of the Corporation shall be
made on the books of the Corporation by the holder of record thereof (in person
of by his or her attorney thereunto duly authorized by a power of attorney duly
executed in writing and filed with the secretary of the Corporation) (i) if a
certificate or certificates have been issued, upon the surrender of the
certificates or certificates, properly endorsed or accompanied by proper
instruments of transfer, representing such shares, or (ii) as otherwise
prescribed by the Board of Directors.
(b) The Corporation shall be entitled to treat the holder of record of any
share of stock as the absolute owner thereof for all purposes, and accordingly
shall not be bound to recognize any legal, equitable or other claim or interest
in such share on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statutes of the State of Maryland.
Section 8.03. Transfer Agents and Registrars: The Board of Directors
may, from time to time, appoint or remove transfer agents or registrars of
shares of the Corporation. Upon any such appointment being made, all
certificates representing shares of the Corporation thereafter issued shall be
countersigned by one of such transfer agents or registrars or by both and shall
not be valid unless so countersigned.
Section 8.04. Transfer Regulations: Except as provided in the
Articles of Incorporation, the shares of the Corporation may be freely
transferred, subject to the charging of customary transfer fees, and the Board
of Directors may, from time to time, adopt rules and regulations with reference
to the method of transfer of the shares of the Corporation.
Section 8.05. Fixing of Record Date: The Board of Directors may fix
in advance a date as a record date for the determination of the stockholders
entitled to notice of or to vote at any stockholders' meeting or any adjournment
thereof, or to express consent to corporate action in writing without a meeting,
or to receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action; provided that
such record date shall be a date not more than 90 nor less than 10 days prior to
the date on which the particular action requiring such determination of
stockholders of record will be taken.
Section 8.06. Lost, Stolen or Destroyed Certificates: Before issuing
a new certificate for shares of the Corporation alleged to have been lost,
stolen or destroyed, the Board of Directors or any officer authorized by the
Board may, in its discretion, require the owner of the lost, stolen or destroyed
certificate (or his or her legal representative) to give the Corporation a bond
or other indemnity, in such form and in such amount as the Board or any such
officer may direct and with such surety or sureties as may be satisfactory to
the Board or any such officer, sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
Section 9.01. Indemnification of Officers, Directors, Employees and
Agents: The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
("Proceeding"), by reason of the fact that he or she 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 all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such Proceeding to the maximum extent permitted by law, now existing or
hereafter adopted. Notwithstanding the foregoing, the following provisions
shall apply with respect to indemnification of the Corporation's directors,
officers, and investment advisor (as defined in the 1940 Act):
(A) Whether or not there is an adjudication of liability in such
Proceeding, the Corporation shall not indemnify any such person for
any liability arising by reason of such person's willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his or her office or under any contract or
agreement with the Corporation ("disabling conduct").
(B) The Corporation shall not indemnify any such person unless
(1) the court or other body before which the Proceeding was brought
(a) dismisses the Proceeding for insufficiency of evidence of any
disabling conduct, or (b) reaches a final decision on the merits
that such person was not liable by reason of disabling conduct;
or
(2) absent such a decision, a reasonable determination is made, based
upon a review of the facts, by (a) the vote of a majority of a
quorum of the directors of the Corporation who are neither
interested persons of the Corporation as defined in the 1940 Act,
nor parties to the Proceeding, or (b) is such quorum is not
obtainable, or even if obtainable, if a majority of a quorum of
directors described above so directs, based upon a written
opinion by independent legal counsel, that such person was not
liable by reason of disabling conduct.
(C) The Corporation may advance expenses in connection with the
preparation and presentation of a defense to any Proceeding from time
to time prior to final disposition thereof upon receipt of an
undertaking by or on behalf of such person that such amount will be
paid over by him or her to the Corporation if it is ultimately
determined that he or she is not entitled to indemnification
hereunder; provided, however, that either
(1) such person shall provide adequate security for his or her
undertaking;
(2) the Corporation shall be insured against losses arising by reason
of such advance; or
(3) a majority of a quorum of the directors of the Corporation who
are neither interested persons of the Corporation as defined in
the 1940 Act, nor parties to the Proceeding, or independent legal
counsel in a written opinion, shall determine, based on a review
of readily available facts that there is reason to believe that
such person will be found to be entitled to indemnification.
Section 9.02. Insurance of Officers, Directors, Employees and Agents:
The Corporation may purchase and maintain insurance or other sources of
reimbursement to the extent permitted by law 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 or arising out of his or her position.
Section 9.03. Non-exclusivity: The indemnification and advancement
of expenses provided by, or granted pursuant to, this Article X shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the Articles of Incorporation,
these By-Laws, agreement, vote of stockholders or directors, or otherwise, both
as to action in his or her official capacity and as to action in another
capacity while holding such office.
Section 9.04. Amendment: No amendment, alteration or repeal of this
Article or the adoption, alteration or amendment of any other provision of the
Articles of Incorporation or By-Laws inconsistent with this Article, shall
adversely affect any right or protection of any person under this Article with
respect to any act or failure to act which occurred prior to such amendment,
alteration, repeal or adoption.
ARTICLE X
MISCELLANEOUS
Section 10.01. Fiscal Year: The fiscal year of the Corporation shall
end on such a date as the Board of Directors may by resolution specify, and the
Board of Directors may by resolution change such date for future fiscal years at
any time and from time to time.
Section 10.02. Books and Records:
(a) The books and records of the Corporation may be kept outside the State
of Maryland at such place or places as the Board of Directors may from time to
time determine, except as otherwise required by law.
(b) The Board of Directors shall, subject to the laws of Maryland, have
power to determine, from time to time, whether and to what extent and at what
times and places and under what conditions and regulations any accounts and
books of the Corporation, or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of
Maryland, unless and until authorized so to do by resolution of the Board of
Directors or of the stockholders.
Section 10.03. Waiver of Notice: Whenever any notice is required to
be given by these By-Laws or the Articles of Incorporation or the laws of the
State of Maryland, a waiver thereof in writing, or by facsimile transmission,
telegraph, cable, radio or wireless by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE XI
AMENDMENTS
Section 11.01. General: Except as provided in Section 11.02 hereof, all
By-Laws of the Corporation, whether adopted by the Board of Directors or the
stockholders, shall be subject to amendment, alteration or repeal, and new By-
Laws may be made, by the affirmative vote of a majority of either:
(a) the holders of record of the outstanding shares of stock of the
Corporation entitled to vote, at any meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new By-Law; or
(b) the directors, at any regular or special meeting the notice or waiver
of notice of which shall have specified or summarized the proposed amendment,
alteration, repeal or new By-Law.
END OF BY-LAWS
EX-99.B9-wrssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
WADDELL & REED FUNDS, INC., and Waddell & Reed Services Company (the "Agent"),
as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement and
charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
WADDELL & REED FUNDS, INC.
By: /s/Sharon K. Pappas
------------------------------------
Sharon K. Pappas, Vice President
ATTEST:
By: /s/Sheryl Strauss
--------------------------------------
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By: /s/Robert L. Hechler
--------------------------------
Robert L. Hechler, President
ATTEST:
By: /s/Sharon K. Pappas
---------------------------
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015195B ICI Mutual
Blanket Bond Form Insurance
Company
Fidelity $17,500,000
Audit Expense 500,000
On Premises 17,500,000
In Transit 17,500,000
Forgery or Alteration 17,500,000
Securities 17,500,000
Counterfeit Currency 17,500,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 17,500,000
Total Limit 17,500,000
Directors and Officers/ 87015195D ICI Mutual
Errors and Omissions Liability Insurance
Insurance Form Company
Total Limit $ 5,000,000
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna Life
& Casualty
Blanket Undertaking Lost Instrument
Probate Waiver 42SUN339806 Hartford
Casualty
Insurance
EX-99.B9-wrlou
DATE
ADDRESS
Dear:
The purpose of this Letter of Understanding is to confirm our mutual
understanding regarding the establishment of an account in the United Funds on
behalf of [NAME OF INSTITUTION OF PLAN] and our agreement as to subsequent
administrative procedures.
It is our understanding that the Plan wishes to establish an account in the
United Funds for the purpose of utilizing [FUND NAME] as a participant-directed
investment alternative. This Letter of Understanding shall serve as a
substitute application to open the account.
We will establish the mutual fund account upon receipt of the initial share
purchase with the following registration:
The Federal Tax Identification Number to be shown on the account is
.
We will set up the account to have dividend and capital gains (securities
profits) distributions reinvested rather than paid in cash. Exhibit A reflects
the frequency of anticipated distributions.
[The next two paragraphs are included only for employee benefit plan/accounts:]
By approving and signing the Letter of Understanding, you certify that the [PLAN
NAME] is a [401(k) / 403(b) / 457] plan having 100 or more eligible employees,
thereby qualifying the plan to establish an omnibus account, under the terms of
the [FUND NAME] Prospectus, for making purchases of Class Y shares, which are
priced at net asset value (no sales load).
The undersigned trustee on behalf of the Plan also certifies that it has the
authority to open such an account on behalf of [PLAN NAME].
It is our understanding that funds will be wire transferred from your bank for
the purpose of purchasing [FUND NAME] shares. To insure timely investment, any
wire must be received by United Missouri Bank by 2:00 p.m. (Central) on the day
of the wire. The following wire order instructions should be used:
United Missouri Bank, N.A.
ABA #101000695; United K.C.;
For Waddell & Reed Account #000-797-8
FBO (Registration of
Account)
Account No. (To be provided for each
account)
Notify Control Depart. 236-1978
When funds are to be wired from the account to your bank in accordance with your
request, the wire must be received by your bank by 1:00 p.m. Eastern on the day
of the wire. The following wire order instructions are to be used:
We offer to provide an enhanced level of service to ...your institution / the
Plan... and its authorized representatives. Contained in Exhibits B and C
hereto is information provided to allow us to provide this service. We cannot
overemphasize that our ability to serve the institutional client is dependent
upon the Plan's representatives interfacing with the members of our
institutional support staff as identified in Exhibit C.
If any of the above does not conform to your understanding and/or instructions,
or if you have questions or need additional information, please do not hesitate
to call me at the number shown on Exhibit C. We are very much looking forward
to our relationship with [NAME OF INSTITUTION OR NAMES OF PLAN AND TRUSTEE] and
are determined to provide the best possible service.
Sincerely,
SALES REP NAME
SALES REP TITLE
ACKNOWLEDGED AND APPROVED
[If signed by a plan trustee, add next line:]
AS TRUSTEE FOR
By:
Title:
Date:
The above signatory certifies that the following
persons are authorized to instruct transactions in the
account (type or print):
For Waddell & Reed use only:
Accepted:
<PAGE>
EXHIBIT A
FREQUENCY OF DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS
[FUND NAME] ordinarily distributes investment income by way of a dividend once
per [NORMAL DIVIDEND FREQUENCY].
[FUND NAME] generally distributes capital gains (securities profits), if capital
gains are available for distribution, once each year in December, on the same
date as the December dividend distribution.
For the Fund and in the case of reinvested dividend and capital gain
distributions, the record date and the reinvestment date are the same. The per
share distribution amounts are applied to the share balance in the account after
the posting of that day's activity.
For the remainder of [YEAR], the ordinary dividend distribution dates would be
[DATES].
<PAGE>
EXHIBIT B
ADDITIONAL SERVICES WE WILL PROVIDE
The following services can be provided by us on an ongoing basis:
1. Coordinating purchases by notifying Waddell & Reed Services Company of each
incoming wire transfer and verifying the posting of the purchase(s) the
following business morning.
2. Confirming the purchase to you including: the date and dollar amount of the
investment, the purchase price and number of shares purchased, and the new Fund
account share balance.
3. Notifying you of dividend and/or capital gains distributions and
reinvestments including: the per share and dollar amount of distributions, the
date of reinvestment, the reinvestment price and number of shares purchased, and
the new Fund account share balance.
4. Processing redemptions based on your request by notifying Waddell & Reed
Services Company of the redemption, instructing them as to the outgoing wire
transfer, and verifying the posting of the redemption the following business
morning.
5. Confirming the redemption to you including: the date and dollar amount of
the redemption, the selling price and number of shares redeemed, and the new
Fund account share balance.
6. At the end of each month following the initial investment, we will provide
a report, if desired, which reflects all transactions in the account during the
previous month, and the share balance, net asset value per share and total
market value of the account.
Each of the confirmations, notifications and reports identified above will be
made available at your request, by telephone or facsimile transmission, as
appropriate to whomever you request.
<PAGE>
EXHIBIT C
LIST OF WADDELL & REED CONTACTS
During the period of account setup and initial wire transfer, your contacts at
Waddell & Reed are the following:
PRIMARY SECONDARY
Cynthia LaGree James McCroy
913-236-1722 913-236-1744
On an ongoing basis once the account is operational, your contacts are as
follows:
PRIMARY SECONDARY
Julie Herrick Dana Arth
913-236-1854 913-236-1853
BACKUP
Cynthia LaGree
913-236-1722
Our fax numbers are:
Primary: 913-236-1801
Secondary: 913-236-1888
EX-99.B11-wrconsnt
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May
10, 1996, relating to the financial statements and financial highlights of
Waddell & Reed Funds, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the Class
B Shares Prospectus and the Class Y Shares Prospectus which constitute part of
this Registration Statement. We also consent to the reference to us under the
heading "Custodial and Auditing Services" in such Statement of Additional
Information and to the references to us under the heading "Financial Highlights"
and "Independent Accountants" in the Class B Shares Prospectus and the Class Y
Shares Prospectus.
Price Waterhouse LLP
Kansas City, Missouri
June 27, 1996
<TABLE>
1FDCSY2 PAGE 1
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM 000000000000003
<S> <C> <C> <C> <C> <C> <C>
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
026609AD9 AMERICAN HOME PRODUCTS YTM 3,897.64 6.46608000 STANDARD YTM
046003EY1 ASSOC CORP N.A. 8.25 YTM 1,722.00 6.44413030 STANDARD YTM
046003FL8 ASSOC CORP NA SR NOTE YTM 2,557.32 6.16993930 STANDARD YTM
053528BY0 AVCO FINL SVCS YTM 4,279.77 6.66754930 STANDARD YTM
055625AD9 BP AMERICA YTM 1,213.14 6.08764400 STANDARD YTM
071813AF6 BAXTER INTERNATIONAL DEB YTM 2,178.54 7.08869320 STANDARD YTM
071813AH2 BAXTER INT'L YTM 3,054.90 5.91035340 STANDARD YTM
07815JCB2 BELL SO TELECOMMUN GSC ACTUAL 1,292.50 5.17000000
125509AC3 CIGNA CORP YTM 2,288.58 6.10719760 STANDARD YTM
126408AC7 CSX CORP YTM 2,722.86 5.88268620 STANDARD YTM
16675HAF9 CHEVRON CORP YTM 2,284.58 7.06515470 STANDARD YTM
171205DE4 CHRYSLER FIN CRP C YTM 3,072.26 5.77110940 STANDARD YTM
205887AA0 CONAGRA INC YTM 1,362.80 6.45104680 STANDARD YTM
207597AJ4 CONNECTICUT LIGHT & POWER YTM 547.34 6.46268190 STANDARD YTM
254063AL4 DILLARDS DEPARTMENT STORE YTM 1,105.68 6.25890630 STANDARD YTM
312909JP0 FHLMC 1243 EA MORTGAGE 177.65 6.75000000 NO GAIN/LOSS
312912E46 FHLMC REMIC 1394-D MORTGAGE 443.55 5.50000000 NO PAYDOWN
312912VY1 FHLMC 1382-D MORTGAGE 443.55 5.50000000 NO PAYDOWN
312914MR2 FHLMC CMO 1466 PG MORTGAGE 1,290.32 6.40000000 NO PAYDOWN
31331CDP0 FEDERAL EXPRESS YTM 2,977.61 6.47193310 STANDARD YTM
31358GL54 FNMA REMIC 1991-61 G MORTGAGE 266.82 7.00000000
31358UPV2 FNMA REMIC 1993-43 C MORTGAGE 2,071.02 5.00000000
313586ZF9 FNMA TBA MORTGAGE 0.00 7.00000000 NO PAYDOWN
313586ZZ5 FNMA TBA MORTGAGE 0.00 6.50000000 NO PAYDOWN
313615SE7 FNMA 50917 MORTGAGE 1,953.09 6.00000000
313615UJ3 FNMA 050985 MORTGAGE 1,649.61 6.00000000
31368W6H8 FNMA 202572 MORTGAGE 1,444.30 8.00000000
31371DHM2 FNMA 248736 MORTGAGE 1,573.48 6.00000000
31371FGY2 FNMA 250515 MORTGAGE 1,785.00 7.00000000 NO PAYDOWN
31372X5G3 FNMA 286247 MORTGAGE 1,675.92 6.50000000 NO PAYDOWN
31374UBX3 FNMA 324154 MORTGAGE 3,058.76 6.50000000
31374VMM3 FNMA 325364 MORTGAGE 2,845.55 6.00000000
319455BR1 FIRST CHICAGO SUB NTS YTM 3,598.50 6.88600600 STANDARD YTM
34527MAA2 FORD CREDIT 93-B GRANTOR YTM 333.72 4.77623650 STANDARD YTM INC BASED ON EFF DT
345397HK2 FORD MOTOR CREDIT YTM 3,719.92 6.12030980 STANDARD YTM
359416AJ3 FRUIT OF THE LOOM YTM 3,919.27 6.87582360 STANDARD YTM
36203F2P9 GNMA POOL #348282 MORTGAGE 1,334.87 6.50000000 NO GAIN/LOSS
36204XYV1 GNMA 383324 MORTGAGE 2,684.43 7.00000000
362320AR4 GTE CORP DEBENTURES YTM 2,274.86 6.43805290 STANDARD YTM
370334MN1 GENERAL MILLS, INC ACTUAL 818.02 0.00000000
370424GG2 GMAC YTM 2,840.92 6.64831810 STANDARD YTM
370424IT2 GMAC MTN YTM 255.14 5.92610760 STANDARD YTM PAGE 1
590188FQ6 MERRILL LYNCH & CO INC YTM 3,206.27 6.59748790 STANDARD YTM
61687RD91 JP MORGAN SECURITIES JPMSEACTUAL IS 1,000.42 UR 5.25000000 IL
1FDCSY2 PAGE 2
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM 000000000000003
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
669383CG4 NORWEST FINL INC SR NTS FOYTM RI 3,459.20 HR 6.42380150 STANDARD YTM
708160AY2 JC PENNEY DEBENTURES YTM 2,790.43 6.10452920 STANDARD YTM
718507AF3 PHILLIPS PETE DEBENTURES YTM 1,150.42 6.47847800 STANDARD YTM
731095AD7 POLAROID CORP YTM 2,031.36 6.70403570 STANDARD YTM
79549BAW7 SALOMON INC SENIOR NOTES YTM 527.76 7.24565010 STANDARD YTM
803111MN0 SARA LEE CORP ACTUAL 1,347.06 0.00000000
812387AQ1 SEARS ROEBUCK CO YTM 2,915.89 6.57626780 STANDARD YTM
817565AJ3 SERVICE CO INTL NOTES YTM 3,898.03 6.65462650 STANDARD YTM
831904AC1 TRV SMITH BARNEY NOTES YTM 2,624.00 5.88646180 STANDARD YTM
845335BK3 SOUTHWESTERN BELL TELEPHO YTM 502.94 5.98951850 STANDARD YTM
880370BL4 TENNECO INC YTM 3,506.95 6.64343570 STANDARD YTM
880451AD1 TENNESSEE GAS PIPELINE YTM/ACTL 1,651.05 9.25000000 STANDARD YTM
911596MN1 U S BANCORP ACTUAL 1,609.65 0.00000000
912129AB9 US LEASING ACTUAL 1,094.30 8.75000000
912827G71 US TREASURY NOTE YTM 1,876.43 5.67901950 STANDARD YTM
912827J78 US TREASURY NOTE YTM 2,085.64 6.30225790 STANDARD YTM
912827K43 US TREASURY NOTE YTM 1,132.37 5.97314240 STANDARD YTM
912827L26 US TREASURY NOTE YTM 3,507.44 5.82986470 STANDARD YTM
949740BV5 WELLS FARGO & COMPANY YTM 1,874.84 6.85973900 STANDARD YTM
1FDCSY2 PAGE 3
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM 000000000000003
0 S U M M A R Y D A T A CLASS 02
0 TOTAL INCOME.................. 122,803.14
0 TOTAL EXPENSES................ 25,512.10-
0 AVERAGE SHARES................ 2,376,148.4355
0 MAXIMUM OFFERING PRICE........ 10.000000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 4.963946
0
1FDCSY2 PAGE 4
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM 000000000000003
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
026609AD9 AMERICAN HOME PRODUCTS YTM 3,897.64 6.46608000 STANDARD YTM
046003EY1 ASSOC CORP N.A. 8.25 FOYTM RI 1,722.00 HR 6.44413030 STANDARD YTM
046003FL8DEASSOC CORP NA SR NOTE ITYTM 2,557.32 6.16993930 STANDARD YTM
053528BY0 AVCO FINL SVCS YTM 4,279.77 6.66754930 STANDARD YTM
055625AD9 BP AMERICA YTM 1,213.14 6.08764400 STANDARD YTM
071813AF6 BAXTER INTERNATIONAL DEB YTM 2,178.54 7.08869320 STANDARD YTM
071813AH2 BAXTER INT'L YTM 3,054.90 5.91035340 STANDARD YTM
07815JCB2 BELL SO TELECOMMUN GSCFOACTUAL RI 1,292.50 HR 5.17000000
125509AC3 CIGNA CORP YTM 2,288.58 6.10719760 STANDARD YTM
126408AC7 CSX CORP YTM 2,722.86 5.88268620 STANDARD YTM
16675HAF9 CHEVRON CORP YTM 2,284.58 7.06515470 STANDARD YTM
171205DE4 CHRYSLER FIN CRP C YTM 3,072.26 5.77110940 STANDARD YTM
205887AA0 CONAGRA INC YTM 1,362.80 6.45104680 STANDARD YTM
207597AJ4 CONNECTICUT LIGHT & POWER YTM 547.34 6.46268190 STANDARD YTM
254063AL4 DILLARDS DEPARTMENT STORE YTM 1,105.68 6.25890630 STANDARD YTM
312909JP0 FHLMC 1243 EA MORTGAGE 177.65 6.75000000 NO GAIN/LOSS
312912E46 FHLMC REMIC 1394-D MORTGAGE 443.55 5.50000000 NO PAYDOWN
312912VY1 FHLMC 1382-D MORTGAGE 443.55 5.50000000 NO PAYDOWN
312914MR2 FHLMC CMO 1466 PG MORTGAGE 1,290.32 6.40000000 NO PAYDOWN
31331CDP0 FEDERAL EXPRESS YTM 2,977.61 6.47193310 STANDARD YTM
31358GL54 FNMA REMIC 1991-61 G MORTGAGE 266.82 7.00000000
31358UPV2 FNMA REMIC 1993-43 C MORTGAGE 2,071.02 5.00000000
313586ZF9 FNMA TBA MORTGAGE 0.00 7.00000000 NO PAYDOWN
313586ZZ5 FNMA TBA MORTGAGE 0.00 6.50000000 NO PAYDOWN
313615SE7 FNMA 50917 MORTGAGE 1,953.09 6.00000000
313615UJ3 FNMA 050985 MORTGAGE 1,649.61 6.00000000
31368W6H8 FNMA 202572 MORTGAGE 1,444.30 8.00000000 PAGE 3
31371DHM2 FNMA 248736 MORTGAGE 1,573.48 6.00000000
31371FGY2 FNMA 250515 SEMORTGAGEIS 1,785.00 UR 7.00000000 ILNO PAYDOWN
31372X5G3 FNMA 286247 FOMORTGAGERI 1,675.92 HR 6.50000000 NO PAYDOWN
31374UBX3DEFNMA 324154 ITMORTGAGE 3,058.76 6.50000000
31374VMM3 FNMA 325364 MORTGAGE 2,845.55 6.00000000
319455BR1 FIRST CHICAGO SUB NTS YTM 3,598.50 6.88600600 STANDARD YTM
34527MAA2 FORD CREDIT 93-B GRANTOR YTM 333.72 4.77623650 STANDARD YTM INC BASED ON EFF DT
345397HK2 FORD MOTOR CREDIT ..YTM 3,719.92 14 6.12030980 STANDARD YTM
359416AJ3 FRUIT OF THE LOOM ..YTM 3,919.27 10 6.87582360 STANDARD YTM
36203F2P9 GNMA POOL #348282 ..MORTGAGE 1,334.87 55 6.50000000 NO GAIN/LOSS
36204XYV1 GNMA 383324 ..MORTGAGE 2,684.43 00 7.00000000
362320AR4 GTE CORP DEBENTURES ..YTM 2,274.86 6.43805290 STANDARD YTM
370334MN1 GENERAL MILLS, INC ..ACTUAL 818.02 46 0.00000000
370424GG2 GMAC YTM 2,840.92 6.64831810 STANDARD YTM
370424IT2 GMAC MTN YTM 255.14 5.92610760 STANDARD YTM PAGE 4
590188FQ6 MERRILL LYNCH & CO INC YTM 3,206.27 6.59748790 STANDARD YTM
61687RD91 JP MORGAN SECURITIES JPMSEACTUAL IS 1,000.42 UR 5.25000000 IL
1FDCSY2 PAGE 5
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM
000000000000003
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
669383CG4 NORWEST FINL INC SR NTS FOYTM RI 3,459.20 HR 6.42380150 STANDARD YTM
708160AY2 JC PENNEY DEBENTURES YTM 2,790.43 6.10452920 STANDARD YTM
718507AF3 PHILLIPS PETE DEBENTURES YTM 1,150.42 6.47847800 STANDARD YTM
731095AD7 POLAROID CORP YTM 2,031.36 6.70403570 STANDARD YTM
79549BAW7 SALOMON INC SENIOR NOTES FOYTM RI 527.76 HR 7.24565010 STANDARD YTM
803111MN0 SARA LEE CORP ACTUAL 1,347.06 0.00000000
812387AQ1 SEARS ROEBUCK CO YTM 2,915.89 6.57626780 STANDARD YTM
817565AJ3 SERVICE CO INTL NOTES YTM 3,898.03 6.65462650 STANDARD YTM
831904AC1 TRV SMITH BARNEY NOTES YTM 2,624.00 5.88646180 STANDARD YTM
845335BK3 SOUTHWESTERN BELL TELEPHO YTM 502.94 5.98951850 STANDARD YTM
880370BL4 TENNECO INC YTM 3,506.95 6.64343570 STANDARD YTM
880451AD1 TENNESSEE GAS PIPELINE YTM/ACTL 1,651.05 9.25000000 STANDARD YTM
911596MN1 U S BANCORP ACTUAL 1,609.65 0.00000000
912129AB9 US LEASING ACTUAL 1,094.30 8.75000000
912827G71 US TREASURY NOTE YTM 1,876.43 5.67901950 STANDARD YTM
912827J78 US TREASURY NOTE YTM 2,085.64 6.30225790 STANDARD YTM
912827K43 US TREASURY NOTE YTM 1,132.37 5.97314240 STANDARD YTM
912827L26 US TREASURY NOTE YTM 3,507.44 5.82986470 STANDARD YTM
949740BV5 WELLS FARGO & COMPANY YTM 1,874.84 6.85973900 STANDARD YTM
1FDCSY2 PAGE 6
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. LIMITED-TERM 000000000000003
0 S U M M A R Y D A T A CLASS 03
0 TOTAL INCOME.................. 5.10
0 TOTAL EXPENSES................ 1.24-
0 AVERAGE SHARES................ 99.1993
0 MAXIMUM OFFERING PRICE........ 10.000000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 4.715052
0
1FDCSY2 PAGE 7
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
012170DA1 ALBANY-DOUGHERTY GA HOSP YTM-CALL 4,886.78 5.94506780 STANDARD YTM
01354MAX9 ALBUQUERQUE TAX FOYTM RI 8,085.87 HR 6.17845790 OID/STANDARD
071810AL9DEBAXTER COUNTY AR TRINOVA ITYTM 2,017.81 6.10477350 STANDARD YTM
12022ABY1 BULLHEAD AZ YTM-CALL 1,431.98 6.30207630 STANDARD YTM
132814AT1 CAMDEN COUNTY NJ RESCO SE YTM-CALL 6,382.11 7.17531410 STANDARD YTM
145750DP7 CARSON CA REDEVELOPMENT A YTM 2,584.51 6.09905790 TAX EXEMPT OID
254838AF2 DC REDEV DC SPORTS ARENA YTM 3,655.57 6.04599800 OID/STANDARD
271593BG9 EAST CHICAGO IN ELEMENTARFOYTM RI 1,875.07 HR 5.75184910 OID/STANDARD
342814AP5 MID-BAY BRIDGE AUTH FL 93 YTM 1,560.28 6.17674170 STANDARD YTM
345105BS8 FOOTHILL E. TRNS CA TOLL YTM 2,990.98 2.97240500 OID/STANDARD
370334MN1 GENERAL MILLS, INC ACTUAL 5,462.27 0.00000000
400653AN1 GUAM POWER AUTHORITY FOYTM RI 1,354.49 HR 6.37866480 STANDARD YTM
43232LCH4 HILLSBOROUGH COUNTY FL YTM-CALL 555.33 4.76157500 STANDARD YTM
451908KY2 IL DEV FIN AUTH MAYWOOD P YTM-CALL 2,033.21 5.92496940 STANDARD YTM
508253AJ0 LAKE CNTY FL YTM 4,915.72 5.95000070 TAX EXEMPT OID
574216FQ5 MD HLTH & ED DOCTORS COMM YTM 2,476.17 6.08811180 TAX EXEMPT OID
59465C2H9 MI HSP FIN AUTH CRITTENTO YTM 4,553.81 5.81324160 OID/STANDARD
606901LD6 HEFA MO SER 96C WASH UNIV ACTUAL 4,022.53 3.30000000
616449AA2 MORAINE SLD WST YTM 4,083.33 5.93482410 STANDARD YTM
639668FC1 NE STUDENT LOAN YTM 2,630.82 6.21092570 STANDARD YTM
650017BW5 NY THRUWAY HIGHWAY & BRID YTM 2,290.00 5.53490470 TAX EXEMPT OID
650017DL7 NY ST TWY AUTH SVC REV YTM-CALL 7,661.06 6.34431570 STANDARD YTM
658196NW6 NC MUNI POWER 93B YTM 5,440.31 5.92455450 STANDARD YTM
664257AP7 NORTHEAST MD WASTE DISPOS YTM 3,385.34 5.84657700 STANDARD YTM
664257AQ5 N.E. MD WASTE DISP AUTH YTM-CALL 3,719.71 6.40965890 STANDARD YTM
678864VQ9 OK HFA SF HOMEOWN LN SR A YTM-CALL 734.19 6.08121760 STANDARD YTM
682756AB7 ONODAGA COUNTY NY RES REC YTM-CALL 1,195.54 6.91105830 STANDARD YTM PAGE 6
69332CDN4 PHH CORPORATION GSC ACTUAL 2,137.28 5.31000000
733902AD2 PORT OF CORPUS CHRISTI TXSEYTM-CALLIS 5,392.64 UR 5.95359780 ILSTANDARD YTM
741724BC1 PRINCE GEORGES CNTY MD HOFOYTM RI 4,569.49 HR 5.50107250 TAX EXEMPT OID
745181EZ6DEPR HTA INFR-REG FLT SER WITACTUAL 2,250.00 5.50000000
748476AV0 QUINCY IL BLESSING HOSP YTM 2,562.40 6.10204560 TAX EXEMPT OID
785652BH0 SABINE RIVER TX PCR TX UT YTM 3,989.99 5.87545060 TAX EXEMPT OID
786134AS5 SACRAMENTO CNTY SANTN REV YTM 5,614.05 5.32558720 TAX EXEMPT OID
788070BV1 ST CHAS LA PCR UNION CARB..YTM-CALL 1,144.94 10 6.28401380 STANDARD YTM
788116AB7 ST CHARLES LA LA POWER & ..YTM-CALL 1,152.67 24 6.58440760 STANDARD YTM
79376MAR2 ST GENEVIEVE MO WATER & S..YTM-CALL 1,306.00 93 6.13327920 STANDARD YTM
803111MN0 SARA LEE CORP ..ACTUAL 2,140.76 00 0.00000000
809492AZ4 SCOTT COUNTY IA RFDG COP ..YTM-CALL 1,758.69 6.04520040 STANDARD YTM
820684BP2 CITY OF SHAWNEE KS 9-1-84..ACTUAL 2,681.69 52 3.00000000
865315AP0 SULLIVAN IN PCR IND-MICH YTM 7,703.11 6.16006480 STANDARD YTM
880458VJ0 TENNESSEE HOUSING DEV PG- YTM 6,192.79 7.04165140 STANDARD YTM PAGE 7
899661CP5 TULSA OK MUN ARPT RV AMER YTM-CALL 2,881.67 6.46958110 STANDARD YTM
89967RAP9 TULSA PUBLIC FACILITIES ASEYTM-CALLIS 2,650.99 UR 6.17972430 ILSTANDARD YTM
1FDCSY2 PAGE 8
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
899674BM6 TULSA OK PUB FAC ASSEMBLYFOYTM RI 1,061.40 HR 5.78302610 STANDARD YTM
911596MN1 U S BANCORP ACTUAL 894.56 0.00000000
915346DM9 UPLAND CA COP SAN ANTONIO YTM 2,185.67 5.62639990 TAX EXEMPT OID
927800GX4 VIRGINIA ED LN AUTH SER C YTM-CALL 4,473.79 5.34868760 STANDARD YTM
939827JL6 WA PUB PWR SUPPLY SYS #1 FOYTM-CALLRI 2,530.46 HR 6.99909630 STANDARD YTM
1FDCSY2 PAGE 9
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0 S U M M A R Y D A T A CLASS 02
0 TOTAL INCOME.................. 159,255.19
0 TOTAL EXPENSES................ 41,195.03-
0 AVERAGE SHARES................ 3,141,657.9565
0 MAXIMUM OFFERING PRICE........ 10.630000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 4.279886
0
1FDCSY2 PAGE 10
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
012170DA1 ALBANY-DOUGHERTY GA HOSP YTM-CALL 4,886.78 5.94506780 STANDARD YTM
01354MAX9 ALBUQUERQUE TAX YTM 8,085.87 6.17845790 OID/STANDARD
071810AL9 BAXTER COUNTY AR TRINOVA ..YTM 2,017.81 10 6.10477350 STANDARD YTM
12022ABY1 BULLHEAD AZ ..YTM-CALL 1,431.98 24 6.30207630 STANDARD YTM
132814AT1 CAMDEN COUNTY NJ RESCO SE..YTM-CALL 6,382.11 93 7.17531410 STANDARD YTM
145750DP7 CARSON CA REDEVELOPMENT A..YTM 2,584.51 00 6.09905790 TAX EXEMPT OID
254838AF2 DC REDEV DC SPORTS ARENA ..YTM 3,655.57 6.04599800 OID/STANDARD
271593BG9 EAST CHICAGO IN ELEMENTAR..YTM 1,875.07 52 5.75184910 OID/STANDARD
342814AP5 MID-BAY BRIDGE AUTH FL 93 YTM 1,560.28 6.17674170 STANDARD YTM
345105BS8 FOOTHILL E. TRNS CA TOLL YTM 2,990.98 2.97240500 OID/STANDARD PAGE 7
370334MN1 GENERAL MILLS, INC ACTUAL 5,462.27 0.00000000
400653AN1 GUAM POWER AUTHORITY SEYTM IS 1,354.49 UR 6.37866480 ILSTANDARD YTM
43232LCH4 HILLSBOROUGH COUNTY FL YTM-CALL 555.33 4.76157500 STANDARD YTM PAGE 8
451908KY2 IL DEV FIN AUTH MAYWOOD P YTM-CALL 2,033.21 5.92496940 STANDARD YTM
508253AJ0 LAKE CNTY FL SEYTM IS 4,915.72 UR 5.95000070 ILTAX EXEMPT OID
574216FQ5 MD HLTH & ED DOCTORS COMMFOYTM RI 2,476.17 HR 6.08811180 TAX EXEMPT OID
59465C2H9DEMI HSP FIN AUTH CRITTENTOICYTM 4,553.81 5.81324160 OID/STANDARD
606901LD6 HEFA MO SER 96C WASH UNIV ACTUAL 4,022.53 3.30000000
616449AA2 MORAINE SLD WST YTM 4,083.33 5.93482410 STANDARD YTM
639668FC1 NE STUDENT LOAN YTM 2,630.82 6.21092570 STANDARD YTM
650017BW5 NY THRUWAY HIGHWAY & BRID YTM 2,290.00 5.53490470 TAX EXEMPT OID
650017DL7 NY ST TWY AUTH SVC REV FOYTM-CALLRI 7,661.06 HR 6.34431570 STANDARD YTM
658196NW6 NC MUNI POWER 93B YTM 5,440.31 5.92455450 STANDARD YTM
664257AP7 NORTHEAST MD WASTE DISPOS YTM 3,385.34 5.84657700 STANDARD YTM
664257AQ5 N.E. MD WASTE DISP AUTH YTM-CALL 3,719.71 6.40965890 STANDARD YTM
678864VQ9 OK HFA SF HOMEOWN LN SR AFOYTM-CALLRI 734.19 HR 6.08121760 STANDARD YTM
682756AB7 ONODAGA COUNTY NY RES REC YTM-CALL 1,195.54 6.91105830 STANDARD YTM PAGE 9
69332CDN4 PHH CORPORATION GSC ACTUAL 2,137.28 5.31000000
733902AD2 PORT OF CORPUS CHRISTI TXSEYTM-CALLIS 5,392.64 UR 5.95359780 ILSTANDARD YTM
741724BC1 PRINCE GEORGES CNTY MD HOFOYTM RI 4,569.49 HR 5.50107250 TAX EXEMPT OID
745181EZ6DEPR HTA INFR-REG FLT SER WICACTUAL 2,250.00 5.50000000
748476AV0 QUINCY IL BLESSING HOSP YTM 2,562.40 6.10204560 TAX EXEMPT OID
785652BH0 SABINE RIVER TX PCR TX UT YTM 3,989.99 5.87545060 TAX EXEMPT OID
786134AS5 SACRAMENTO CNTY SANTN REV YTM 5,614.05 5.32558720 TAX EXEMPT OID
788070BV1 ST CHAS LA PCR UNION CARB..YTM-CALL 1,144.94 19 6.28401380 STANDARD YTM
788116AB7 ST CHARLES LA LA POWER & ..YTM-CALL 1,152.67 03 6.58440760 STANDARD YTM
79376MAR2 ST GENEVIEVE MO WATER & S..YTM-CALL 1,306.00 65 6.13327920 STANDARD YTM
803111MN0 SARA LEE CORP ..ACTUAL 2,140.76 00 0.00000000
809492AZ4 SCOTT COUNTY IA RFDG COP ..YTM-CALL 1,758.69 6.04520040 STANDARD YTM
820684BP2 CITY OF SHAWNEE KS 9-1-84..ACTUAL 2,681.69 86 3.00000000
865315AP0 SULLIVAN IN PCR IND-MICH YTM 7,703.11 6.16006480 STANDARD YTM
880458VJ0 TENNESSEE HOUSING DEV PG- YTM 6,192.79 7.04165140 STANDARD YTM PAGE 10
899661CP5 TULSA OK MUN ARPT RV AMER YTM-CALL 2,881.67 6.46958110 STANDARD YTM
89967RAP9 TULSA PUBLIC FACILITIES ASEYTM-CALLIS 2,650.99 UR 6.17972430 ILSTANDARD YTM
1FDCSY2 PAGE 11
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
--------- ------------------------- -------- ------------- --------------- -------------------- --------------------
899674BM6 TULSA OK PUB FAC ASSEMBLYFOYTM RI 1,061.40 HR 5.78302610 STANDARD YTM
911596MN1 U S BANCORP ..ACTUAL 894.56 93 0.00000000
915346DM9 UPLAND CA COP SAN ANTONIO..YTM 2,185.67 00 5.62639990 TAX EXEMPT OID
927800GX4 VIRGINIA ED LN AUTH SER C..YTM-CALL 4,473.79 5.34868760 STANDARD YTM
939827JL6 WA PUB PWR SUPPLY SYS #1 ..YTM-CALL 2,530.46 52 6.99909630 STANDARD YTM
1FDCSY2 PAGE 12
RUN DATE: 06/28/96, TIME: 10:18:06
0 SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 03/01/96 THROUGH 03/31/96
0 WADDELL & REED FUNDS, INC. MUNICIPAL BON 000000000000004
0 S U M M A R Y D A T A CLASS 03
0 TOTAL INCOME.................. 4.64
0 TOTAL EXPENSES................ 1.05-
0 AVERAGE SHARES................ 92.0937
0 MAXIMUM OFFERING PRICE........ 10.630000
0 EXPONENT USED IN FORMULA...... 6
0 SEC ADVERTISED YIELD.......... 4.441146
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 164,177,010
<INVESTMENTS-AT-VALUE> 206,438,916
<RECEIVABLES> 2,424,632
<ASSETS-OTHER> 10,272
<OTHER-ITEMS-ASSETS> 3,900
<TOTAL-ASSETS> 208,877,720
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 557,864
<TOTAL-LIABILITIES> 557,864
<SENIOR-EQUITY> 127,479
<PAID-IN-CAPITAL-COMMON> 165,029,890
<SHARES-COMMON-STOCK> 12,747,945
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 900,581
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,261,906
<NET-ASSETS> 208,319,856
<DIVIDEND-INCOME> 2,146,314
<INTEREST-INCOME> 639,467
<OTHER-INCOME> 0
<EXPENSES-NET> (2,955,474)
<NET-INVESTMENT-INCOME> (169,693)
<REALIZED-GAINS-CURRENT> 2,284,263
<APPREC-INCREASE-CURRENT> 32,910,995
<NET-CHANGE-FROM-OPS> 35,025,565
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (498,889)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,517,483
<NUMBER-OF-SHARES-REDEEMED> (1,027,718)
<SHARES-REINVESTED> 32,501
<NET-CHANGE-IN-ASSETS> 103,629,121
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,051,336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,955,474
<AVERAGE-NET-ASSETS> 148,322,203
<PER-SHARE-NAV-BEGIN> 12.73
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 3.67
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.34
<EXPENSE-RATIO> 1.99
<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, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 159,619,684
<INVESTMENTS-AT-VALUE> 202,045,135
<RECEIVABLES> 1,314,324
<ASSETS-OTHER> 10,272
<OTHER-ITEMS-ASSETS> 19,670
<TOTAL-ASSETS> 203,389,401
<PAYABLE-FOR-SECURITIES> 369,353
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 462,163
<TOTAL-LIABILITIES> 831,516
<SENIOR-EQUITY> 96,461
<PAID-IN-CAPITAL-COMMON> 155,883,631
<SHARES-COMMON-STOCK> 9,649,055
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,152,342
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,425,451
<NET-ASSETS> 202,557,885
<DIVIDEND-INCOME> 114,232
<INTEREST-INCOME> 2,630,407
<OTHER-INCOME> 0
<EXPENSES-NET> (3,106,171)
<NET-INVESTMENT-INCOME> (361,532)
<REALIZED-GAINS-CURRENT> 5,724,029
<APPREC-INCREASE-CURRENT> 27,231,115
<NET-CHANGE-FROM-OPS> 32,593,612
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,023,159)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,325,421
<NUMBER-OF-SHARES-REDEEMED> (787,512)
<SHARES-REINVESTED> 151,221
<NET-CHANGE-IN-ASSETS> 101,874,957
<ACCUMULATED-NII-PRIOR> 6,511
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,180,192
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,106,171
<AVERAGE-NET-ASSETS> 146,042,604
<PER-SHARE-NAV-BEGIN> 16.90
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> 4.49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.37)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.00
<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 ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 23,540,255
<INVESTMENTS-AT-VALUE> 23,333,878
<RECEIVABLES> 457,892
<ASSETS-OTHER> 9,910
<OTHER-ITEMS-ASSETS> 527
<TOTAL-ASSETS> 23,802,207
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,677
<TOTAL-LIABILITIES> 119,677
<SENIOR-EQUITY> 23,685
<PAID-IN-CAPITAL-COMMON> 23,849,385
<SHARES-COMMON-STOCK> 2,368,539
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,837
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (206,377)
<NET-ASSETS> 23,682,530
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 975,889
<OTHER-INCOME> 0
<EXPENSES-NET> (328,785)
<NET-INVESTMENT-INCOME> 647,104
<REALIZED-GAINS-CURRENT> 90,054
<APPREC-INCREASE-CURRENT> 99,034
<NET-CHANGE-FROM-OPS> 836,192
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 647,104
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,575,547
<NUMBER-OF-SHARES-REDEEMED> (549,241)
<SHARES-REINVESTED> 62,031
<NET-CHANGE-IN-ASSETS> 11,263,764
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 87,085
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 328,785
<AVERAGE-NET-ASSETS> 15,622,003
<PER-SHARE-NAV-BEGIN> 9.70
<PER-SHARE-NII> .41
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> (.41)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 2.10
<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, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 31,908,658
<INVESTMENTS-AT-VALUE> 32,398,300
<RECEIVABLES> 1,616,670
<ASSETS-OTHER> 9,990
<OTHER-ITEMS-ASSETS> 3,629
<TOTAL-ASSETS> 34,028,589
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 158,738
<TOTAL-LIABILITIES> 158,738
<SENIOR-EQUITY> 31,855
<PAID-IN-CAPITAL-COMMON> 33,905,496
<SHARES-COMMON-STOCK> 3,185,475
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (557,142)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 489,642
<NET-ASSETS> 33,869,851
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,813,054
<OTHER-INCOME> 0
<EXPENSES-NET> 584,726
<NET-INVESTMENT-INCOME> 1,228,328
<REALIZED-GAINS-CURRENT> 96,208
<APPREC-INCREASE-CURRENT> 749,744
<NET-CHANGE-FROM-OPS> 2,074,280
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,228,328)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 959,726
<NUMBER-OF-SHARES-REDEEMED> (542,901)
<SHARES-REINVESTED> 104,736
<NET-CHANGE-IN-ASSETS> 6,435,769
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 169,713
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 584,726
<AVERAGE-NET-ASSETS> 30,309,956
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .33
<PER-SHARE-DIVIDEND> (.43)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.63
<EXPENSE-RATIO> 1.93
<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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 20,007,311
<INVESTMENTS-AT-VALUE> 20,760,104
<RECEIVABLES> 278,079
<ASSETS-OTHER> 9,910
<OTHER-ITEMS-ASSETS> 6,782
<TOTAL-ASSETS> 21,054,875
<PAYABLE-FOR-SECURITIES> 101,665
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 72,204
<TOTAL-LIABILITIES> 173,869
<SENIOR-EQUITY> 21,013
<PAID-IN-CAPITAL-COMMON> 20,531,701
<SHARES-COMMON-STOCK> 2,101,311
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (33,657)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (391,077)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 753,026
<NET-ASSETS> 20,881,006
<DIVIDEND-INCOME> 142,220
<INTEREST-INCOME> 351,268
<OTHER-INCOME> 0
<EXPENSES-NET> (394,801)
<NET-INVESTMENT-INCOME> 98,687
<REALIZED-GAINS-CURRENT> (46,537)
<APPREC-INCREASE-CURRENT> 850,135
<NET-CHANGE-FROM-OPS> 902,285
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (208,849)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,098,330
<NUMBER-OF-SHARES-REDEEMED> (214,469)
<SHARES-REINVESTED> 22,332
<NET-CHANGE-IN-ASSETS> 9,692,605
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 126,515
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 394,801
<AVERAGE-NET-ASSETS> 15,761,973
<PER-SHARE-NAV-BEGIN> 9.36
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .63
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> 2.50
<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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> ASSET STRATEGY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 13,221,745
<INVESTMENTS-AT-VALUE> 12,898,594
<RECEIVABLES> 601,657
<ASSETS-OTHER> 4,137
<OTHER-ITEMS-ASSETS> 3,242
<TOTAL-ASSETS> 13,507,630
<PAYABLE-FOR-SECURITIES> 250,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,173
<TOTAL-LIABILITIES> 285,173
<SENIOR-EQUITY> 13,024
<PAID-IN-CAPITAL-COMMON> 13,338,323
<SHARES-COMMON-STOCK> 1,302,369
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,882
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 189,379
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (323,151)
<NET-ASSETS> 13,222,457
<DIVIDEND-INCOME> 27,130
<INTEREST-INCOME> 281,049
<OTHER-INCOME> 0
<EXPENSES-NET> (167,177)
<NET-INVESTMENT-INCOME> 141,002
<REALIZED-GAINS-CURRENT> 187,466
<APPREC-INCREASE-CURRENT> (323,151)
<NET-CHANGE-FROM-OPS> 5,317
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (134,207)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,509,962
<NUMBER-OF-SHARES-REDEEMED> (220,727)
<SHARES-REINVESTED> 13,134
<NET-CHANGE-IN-ASSETS> 13,222,457
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 52,588
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167,177
<AVERAGE-NET-ASSETS> 6,962,206
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> 2.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EX-99.B18-wrmcp
WADDELL & REED FUNDS, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for each Fund ("Fund") comprising Waddell & Reed Funds, Inc.
This multiple class structure was approved by the Board of Directors of Waddell
& Reed Funds, Inc. on February 8, 1995, under an order of exemption issued by
the Securities and Exchange Commission on January 11, 1995. Subsequent to such
approval, Rule 18f-3 under the 1940 Act was adopted. It was determined that
each Fund operate under Rule 18f-3, and this Plan was adopted pursuant to Rule
18f-3. This Plan describes the classes of shares of stock of the Fund -- Class
B shares and Class Y shares -- offered to the public on or after December 2,
1995 ("Implementation Date").
General Description of the Classes:
Class B Shares. Class B shares will be sold subject to a contingent
deferred sales charge, which will be imposed on redemption proceeds. The
maximum contingent deferred sales charge will be 3.0% and will decline 1% per
year after the first full calendar year after investment to 0% after four years.
Class B shares also will be subject to a distribution and service fee charged
pursuant to a Service Plan adopted pursuant to Rule 12b-1 under the 1940 Act
("Rule 12b-1") that provides for a maximum fee of 1.00% of the average annual
net assets of the Class B shares of a Fund.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and will not be subject to a contingent deferred sales charge. Class Y
shares will be subject to a maximum Rule 12b-1 fee of 0.25% of the average
annual net assets of the Class Y shares of a Fund. Class Y shares are designed
for institutional investors and will be available for purchase by: (i)
participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended ("Code"), when an unaffiliated third
party provides certain administrative, distribution and/or other support
services to the plan and the plan holds the shares in an omnibus account on the
Fund's records; (ii) banks, trust institutions, investment fund administrators
and other third parties investing for their own accounts or for the accounts of
their customers where such investments for customer accounts are held in an
omnibus account on the Fund's records and to which entity an unaffiliated third
party provides certain administrative distribution and/or other support
services; (iii) government entities or authorities and corporations where the
investment is $1 million or more.
Expense Allocations of Each Class:
In addition to the difference with respect to 12b-1 fees, Class B shares
and Class Y shares of a Fund differ with respect to the applicable shareholder
servicing fees. Class B shares pay a monthly shareholder servicing fee of
$1.0208 for each Class B shareholder account which was in existence during the
prior month, plus $0.30 for each Class B account on which a dividend or
distribution had a record date in that month. Class Y shares pay a monthly
shareholder servicing fee equal to one-twelfth of .15 of 1% of the average daily
net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other expenses:
(a) stationery, printing, postage and delivery expenses related to
preparing and distributing materials such as shareholder reports,
prospectuses, and proxy statements to current shareholders of a specific
Class of shares;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of shares;
(d) expenses of administrative personnel and services required to
support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and expenses
relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings as a
result of issues relating to a specific Class of shares.
For any Fund, these expenses may, but are not required to, be directly
attributed and charged to a particular Class. The shareholder servicing fees
and other expenses listed above that are attributed and charged to a particular
Class are borne on a pro rata basis by the outstanding shares of that Class.
The expenses of the Funds that are not attributed to any one Fund generally
are allocated to each Fund based on the relative net assets of the Funds.
Certain expenses that may be attributable to a particular Fund, but not a
particular Class, are allocated based on the relative daily net assets of the
Classes of that Fund.
Exchange Privileges:
Class B shares of a Fund may be exchanged for corresponding shares of any
other fund in Waddell & Reed Funds, Inc.
Class Y shares may be exchanged for Class Y shares of any other fund in
Waddell & Reed Funds, Inc.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and a
Fund's multiple class structure.
Adopted: October 3, 1995
As Amended: December 6, 1995
Effective: January 9, 1996
June 27, 1996
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
Re: Waddell & Reed Funds, Inc.
Post-Effective Amendment No. 7
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:mmd
