WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
Municipal Bond Fund
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1996
<PAGE>
TOTAL RETURN FUND
MANAGER'S LETTER
MARCH 31, 1996
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Total Return Fund for the fiscal
year ended March 31, 1996. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
During the past fiscal year, the Federal Reserve Bank lowered short-term
interest rates three times. Lower short-term rates and strong corporate profit
growth, combined, led to a strong performance by the equity markets during the
first three quarters of the fiscal year. In the early part of the year, the
market was led by growth cyclicals, like consumer durables and technology. In
the second half, leadership shifted toward stable growth as investors began to
question the sustainability of economic strength. The Total Return Fund is
invested primarily in the prior area. Returns for the year accordingly were
stronger earlier.
We continued to focus our investments on companies that we perceived as having
the most potential for superior long-term growth. Currently we are emphasizing
corporations with efficient worldwide distribution systems and companies with
significant exports to emerging nations.
The strategies and techniques we applied resulted in the direction of the Fund's
performance remaining fairly consistent with that of the indexes charted on the
following page. Those indexes reflect the performance of securities that
generally represent the stock market (the S&P 500 Index) and the universe of
funds with similar investment objectives (the Lipper Growth and Income Fund
Universe Average). The Fund's performance, like equities in general, was
affected by the technology sell-off late in the fiscal year.
We anticipate that inflation will remain relatively low from a historical
perspective and that the U.S. economy will grow at a modest rate. In this
favorable environment, we expect to emphasize growth cyclical stocks that
demonstrate superior performance and we intend to pursue the same strategies we
have recently been employing.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Russell E. Thompson
Manager, Total Return Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TOTAL RETURN FUND CLASS B SHARES,
THE S&P 500 INDEX,
AND THE LIPPER GROWTH & INCOME FUND UNIVERSE AVERAGE
Total Lipper
Return Growth &
Fund S&P Income Fund
Class B 500 Universe
Shares Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,147 10,962 11,053
03/31/94 12,073 11,123 11,395
03/31/95 12,818 12,855 12,509
03/31/96 16,503 16,982 16,001
===== Total Return Fund, Class B Shares (1) (2) -- $16,503
+++++ S&P 500 Index (1) -- $16,982
- ---------- Lipper Growth & Income Fund Universe Average (1) -- $16,001
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of
a month, and partial month calculations of the performance of the S&P 500
Index and the Lipper Growth & Income Fund Universe Average (including income)
are not available, the investments in the Fund, Index and Lipper Universe were
effected as of September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
Average Annual Total Return *
Class B Class Y
-----------------------------
Year Ended
3/31/96 25.75% N/A
3+ Years Ended
3/31/96** 15.10% N/A
Aggregate Total
Return for Life
of Class Y *** N/A 6.92*
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (3+ Years).
**9-21-92 (the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
investors) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
TOTAL RETURN FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Current income while
securities convertible into seeking capital
common stocks. growth.
Cash Reserves STRATEGY: 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. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Total Return Fund
from time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak may allow the Fund the
opportunity to capture profits and
attempt to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY,
when deemed appropriate, may be used in
the management of the portfolio.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 1996
- ----------------------------------------
CAPITAL GAINS DISTRIBUTION $0.05
======
NET ASSET VALUE ON
3/31/96 $16.34 adjusted to:$16.39 (A)
3/31/95 12.73
------
CHANGE PER SHARE $3.66
======
(A)This number includes the capital gains distribution of $0.05 paid in December
1995 added to the actual net asset value on March 31, 1996.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-96 25.75% 28.75%
Period from 9-21-92*
through 3-31-96 15.10% 15.10%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, Total Return Fund had net assets totaling $208,319,856
invested in a diversified portfolio of:
90.85% Common Stocks
9.15% Cash and Cash Equivalents
As a shareholder of Total Return Fund, for every $100 you had invested on March
31, 1996, your Fund owned:
$56.79 Manufacturing Stocks
9.67 Wholesale and Retail Trade Stocks
9.59 Transportation, Communication, Electric
and Sanitary Services Stocks
9.15 Cash and Cash Equivalents
6.45 Services Stocks
5.27 Finance, Insurance and Real Estate Stocks
3.08 Contract Construction Stocks
Not all holdings will be represented in the portfolio at all times.
<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 59.
<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 59.
<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 59.
<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 59.
<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 59.
<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 59.
<PAGE>
WADDELL & REED GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1996
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Growth Fund for the fiscal year
ended March 31, 1996. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
During the first half of the fiscal year, strong corporate earnings and
declining interest rates contributed to increases in stock prices, particularly
those of growth companies. Decelerating profit growth and indications of a
slowing economy during the second half of the fiscal year resulted in a
corresponding general slowing of performance for growth and small cap stocks as
investors turned to larger and more stable companies.
The Fund continued to pursue a strategy of identifying companies in market
niches where expectations of twenty-five percent (25%) three to five year
sustainable growth in revenues and profits appear attainable. Upon identifying
such companies, the Fund has employed a buy and hold strategy to take advantage
of appreciation in the value of their stock.
The strategies and techniques we applied resulted in the performance of the Fund
remaining fairly consistent with the indexes charted on the following page.
Those indexes reflect the performance of securities that generally represent the
small companies sector of the stock market (the Nasdaq Industrials Index) and
the universe of funds with similar investment objectives (the Lipper Growth Fund
Universe Average). The Nasdaq Industrials Index will replace the S&P 500 Index
in future reports. We believe that the Nasdaq Industrials Index provides a more
appropriate basis for comparison of the Fund's performance. This is because the
investment strategies pursued by the Fund emphasize securities of companies with
lower capitalization than those included in the S&P 500 Index. The S&P 500
Index reflects the performance of securities that generally represent the stock
market and has been included in this report for comparison purposes.
As 1996 began, market analysts were predicting slow economic growth and lower
corporate earnings, accompanied by low inflation and interest rates. However,
recent government statistics have reflected stronger-than-expected employment
growth. The new employment figures have fueled uncertainty regarding the
direction of the economy and of inflation and interest rates. Until the
economic picture becomes more clear, we expect to pursue a fairly cautious
strategy.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Mark G. Seferovich
Manager, Growth Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
GROWTH FUND CLASS B SHARES,
THE S&P 500 INDEX,
THE NASDAQ INDUSTRIALS INDEX,
AND THE LIPPER GROWTH FUND UNIVERSE AVERAGE
Lipper
Growth Growth
Fund, S&P Nasdaq Fund
Class B500 Industrials Universe
Shares Index Index Average
--------- ---------- ---------- ----------
09/30/92 Purchase 10,000 10,000 10,000 10,000
03/31/93 11,771 10,962 11,493 11,177
03/31/94 14,497 11,123 12,548 11,674
03/31/95 17,775 12,855 12,913 12,694
03/31/96 22,497 16,982 16,507 16,254
===== Growth Fund, Class B Shares (1) (2) -- $22,497
+++++ S&P 500 Index (1) -- $16,982
******Nasdaq Industrial Index(1) - $16,507
- ---------- Lipper Growth Fund Universe Average (1) -- $16,254
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of
a month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
Average Annual Total Return *
Class B Class Y
-----------------------------
Year Ended
3/31/96 23.57% N/A
3+ Years Ended
3/31/96** 25.85% N/A
Aggregate Total
Return for Life
of Class Y *** N/A 4.11%****
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (3+ Years).
**9-21-92 (the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------------------
GROWTH FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Capital appreciation.
securities convertible
into common stocks.
Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that offer above-
average growth potential, including
relatively new or unseasoned companies.
(May purchase securities subject to
repurchase agreements. May invest in
certain options, futures and other
hedging techniques.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Growth Fund from
time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak may allow the Fund the
opportunity to capture profits and
attempt to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY,
when deemed appropriate, may be used in
the management of the portfolio.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- ----------------------------------------
CAPITAL GAIN DISTRIBUTION $0.37
======
NET ASSET VALUE ON
3/31/96 $21.00 adjusted to:$21.37 (A)
3/31/95 16.90
------
CHANGE PER SHARE $ 4.47
======
(A)This number includes the capital gains distribution of $0.37 paid in December
1995 added to the actual net asset value on March 31, 1996.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
----------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-96 23.57% 26.57%
Period from 9-21-92*
through 3-31-96 25.85% 25.85%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, Growth Fund had net assets totaling $202,557,885 invested in
a diversified portfolio of:
66.56% Common Stocks
33.44% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on March 31,
1996, your Fund owned:
$39.04 Services Stocks
33.44 Cash and Cash Equivalents
11.98 Manufacturing Stocks
6.68 Finance, Insurance and Real Estate Stocks
5.33 Wholesale and Retail Trade Stocks
3.53 Transportation, Communication, Electric
and Sanitary Services Stocks
<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 59.
<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 59.
<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 59.
<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 59.
<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 59.
<PAGE>
WADDELL & REED INTERNATIONAL GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1996
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the International Growth Fund for the
fiscal year ended March 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period. The Fund's performance was impacted by its change in objective, as of
April 20, 1995, to emphasis on international equities.
During the past fiscal year, inflation remained subdued and interest rates
declined as economic growth in most foreign countries slowed. International
markets were still experiencing the effect of several important developments,
including the Mexican peso devaluation and the efforts of Japan's central bank
to restart a very depressed economy. The U.S. Dollar began to rise versus the
Deutsche Mark and the Japanese Yen, the two other important reserves currencies
of the underdeveloped world. The Federal Reserve Bank relaxed U.S. monetary
policy, making it easier for foreign countries to ease their rates and
contributing to moderate global economic recovery.
Following the change in objective, the Fund gradually converted to foreign
equity investments. Because European economies seemed likely to continue to
slow, the Fund emphasized interest-sensitive stocks in Scandinavia, Germany and
Britain on the idea that interest rates would be lowered to help stabilize
economies. Emphasis on stocks of exporters and pharmaceutical companies was
also undertaken as the U.S. Dollar continued to rise, improving the
competitiveness of these companies in world markets. The portfolio also
stressed Pacific Basin companies that provide low-cost alternatives to developed
nations' production facilities. Infrastructure stocks were preferred for
emerging economies with strong government spending plans, as well as technology
stocks serving those high-need areas. The Fund avoided or de-emphasized
investments in countries experiencing turmoil, notably Japan, Brazil and
Argentina.
As a result of the change in the Fund's objective, the indexes that will be used
to compare the Fund's performance will be different from last year's report.
The Fund operated under its new objective for most of the past fiscal year, but
comparison to any particular index is difficult due to the transition from fixed
income to equity investments. As charted on the following page, the strategies
and techniques we applied resulted in performance by the Fund this past fiscal
year modestly below the performance of the securities index that reflects the
performance of the securities market in Europe, Asia and the Far East (the
Morgan Stanley E.A.FE. Index) and the universe of funds with similar investment
objectives (the Lipper International Fund Universe Average). The securities
indexes that relate to the Fund's former objective (the Lehman Brothers Mutual
Fund Short World Multi-Market Index and the Lipper Short World Multi-Market
Income Fund Universe Average) are also shown for comparison purposes.
We expect that global financial markets will remain volatile during the next
fiscal year. Although we expect international inflation to remain low and
interest rates to decline, political uncertainty in many developing countries
may overshadow these positive trends in the global financial markets. The U.S.
Dollar should remain strong relative to world currencies during the next fiscal
year. European currencies should experience significant volatility as
Scandinavian countries, Britain and Italy contemplate inclusion in a single
European currency. We expect to continue our emphasis on stocks in economically
and politically stable countries that have potential for above average growth.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Henry J. Herrmann
Manager, International Growth Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
INTERNATIONAL GROWTH FUND CLASS B SHARES(1),
THE LEHMAN BROTHERS MUTUAL FUND SHORT WORLD MULTI-MARKET INDEX,
THE LIPPER SHORT WORLD MULTI-MARKET INCOME FUND UNIVERSE AVERAGE
THE MORGAN STANLEY E.A.FE. INDEX
AND THE LIPPER INTERNATIONAL FUND UNIVERSE AVERAGE
Lehman Lipper Morgan
International BrothersShort WorldStanley Lipper
Growth Mutual FundMulti-MarketE.A.FE. International
Fund, Short WorldIncome FundIndexFund
Class BMulti-MarketUniverse(with netUniverse
Shares Index AverageDividends)Average
--------- ----------------------------- ----------
09/30/92Purchase 10,000 10,000 10,000 10,000 10,000
03/31/93 9,753 9,945 10,100 10,767 10,747
03/31/94 9,785 10,482 10,257 13,190 13,649
03/31/95 10,160 11,542 10,011 13,992 13,397
03/31/96 10,937 12,456 11,260 15,717 15,561
===== International Growth Fund, Class B (2) (3) -- $10,937
+++++ Lehman Brothers Mutual Fund Short World Multi-Market Index (2) -- $12,456
- ---------- Lipper Short World Multi-Market Income Fund Universe Average (2) --
$11,260
******Morgan Stanley E.A.FE. Index (with net dividends)(2) - $15,717
*-*-*-*-Lipper International Fund Universe Average(2) - $15,561
Past performance is not predictive of future performance. Indexes are
unmanaged.
Morgan
International Stanley Lipper
Growth E.A.FE.International
Fund, Index Fund
Class B (with netUniverse
Shares Dividends)Average
--------- -------------------
April 1995 Purchase 10,000 10,000 10,000
June 1995 9,687 9,707 10,083
Sept 1995 10,242 9,840 10,580
Dec 1995 9,755 10,522 10,784
March 1996 9,965 10,826 11,257
===== International Growth Fund, Class B (3) (4) -- $9,965
******Morgan Stanley E.A.FE. Index (with net dividends)(4) - $10,826
*-*-*-*-Lipper International Fund Universe Average(4) - $11,257
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Effective as of 4/20/95, the name of the Fund was changed to Waddell & Reed
International Growth Fund and its investment objective was changed to long-
term appreciation, with realization of income as a secondary objective. Due
to the change in objective, more appropriate indexes have been selected with
which to compare the Fund's performance following 4/20/95.
(2) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
September 30, 1992.
(3) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
(4) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
April 30, 1995.
Average Annual Total Return *
Class B Class Y
-----------------------------
Year Ended
3/31/96 4.64% N/A
3+ Years Ended
3/31/96** 2.93% N/A
Aggregate Total
Return for Life
of Class Y *** N/A 2.58%****
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (3+ Years).
**9-21-92 (the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
INTERNATIONAL GROWTH FUND
PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: Long-term appreciation
foreign securities. Not of capital with current
more than 75% in securities income as a secondary
in any one country. consideration.
Maximum of 15% in currency STRATEGY: Invests in securities
exchange contracts (common or preferred stocks
and/or debt securities) issued
Cash Reserves by companies or governments of any
nation, including the United States.
Securities are selected for their
potential to provide long-term growth.
The Fund provides an opportunity to
invest in foreign companies in many
different industries. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.) International Growth Fund
(formerly Global Income Fund) changed
its name and investment objective
effective April 20, 1995.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the International
Growth Fund from time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak may allow the Fund the
opportunity to capture profits and
attempt to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY,
when deemed appropriate, may be used in
the management of the portfolio.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- ----------------------------------------
DIVIDENDS PAID $0.13
=====
NET ASSET VALUE ON
3/31/96 $9.94
3/31/95 9.36
------
CHANGE PER SHARE $ 0.58
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-96 4.64% 7.64%
Period from 9-21-92*
through 3-31-96 2.93% 2.93%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, International Growth Fund had net assets totaling $20,881,006
invested in a diversified portfolio of:
55.88% Common Stocks
33.67% Cash and Cash Equivalents
4.82% United States Government Security
3.29% Other Government Securities
2.34% Preferred Stocks
Not all holdings will be represented in the portfolio at all times.
<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 59.
<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 59.
<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 59.
<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 59.
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1996
Dear Shareholder:
This report relates to the operation of the Asset Strategy Fund for the fiscal
year ended March 31, 1996. The discussion, graphs and tables contained in this
report will provide you with information regarding the Fund's performance during
that period. Since the public offering of shares of the Fund began on April 20,
1995, performance data will reflect activity of the Fund for less than a full
year.
Since the beginning of the Fund's activity through the end of 1995, both the
bond market and the stock market posted strong gains. During this period,
yields on the Thirty-year Treasury Bonds declined from 7.43% to 5.95%, and the
S&P 500 Index rose over 23%. However, during the last quarter of the past
fiscal year, the bond market declined sharply in contrast to a rise in the S&P
500 Index.
The Fund typically pursues a strategy of investing in securities that are
subject to relatively low risk and that have attractive valuations due to market
forces. With the strong gains posted by the U.S. equity markets during the past
fiscal year, few stocks appeared to be particularly conducive to the Fund's
investment strategies. Accordingly, the Fund maintained a significant portion
of its portfolio in cash and bonds during the past fiscal year while seeking to
identify undervalued stocks with long-term growth potential.
The strategies and techniques we applied resulted in the direction of the Fund's
overall performance, and the performance of its holdings in the various
categories of securities in which the Fund invests, remaining below that of the
indexes charted on the following page in large part due to the cash and bond
positions in the Fund's portfolio. Those indexes reflect the performance of
securities that generally represent the stock market (the S&P 500 Index), one-
month certificates of deposit (Salomon Brothers Short-Term Index for 1 Month
Certificates of Deposit), the bond market (the Lehman Brothers Aggregate Bond
Index) and the universe of portfolios with similar investment objectives (the
Lipper Flexible Portfolio Universe Average). A variety of indexes is presented
because the Fund invests in stocks, bonds and other instruments.
The overall environment at the present is somewhat problematic for financial
assets. Equity valuation is toward the high end of historic norms. Interest
rates have risen lately and could move higher given current economic and
political uncertainties. Inflation, long in a declining trend, may be about to
become less helpful to financial markets, at least for an interim period.
Accordingly, we are inclined to stay conservatively postured, awaiting the
development of better opportunities to become more aggressive.
Thank you for your continued confidence.
Respectfully,
James D. Wineland
Manager, Asset Strategy Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
ASSET STRATEGY FUND CLASS B SHARES,
THE S&P'S 500 INDEX,
THE LEHMAN BROTHERS AGGREGATE BOND INDEX,
THE SALOMON BROTHERS SHORT-TERM INDEX FOR 1 MONTH CERTIFICATES OF DEPOSIT,
AND THE LIPPER FLEXIBLE PORTFOLIO UNIVERSE AVERAGE
Salomon
Brothers
Asset LehmanShort-Term Lipper
Strategy Brothers Index Flexible
Fund, S&P Aggregatefor 1 monthPortfolio
Class B500 BondCertificatesUniverse
SharesIndex Indexof Deposit Average
------------------------------------------------
5/01/95 Purchase 10,000 10,000 10,000 10,000 10,000
6/30/95 10,05010,641 10,463 10,100 10,369
9/30/95 10,45111,487 10,669 10,250 10,641
12/31/95 10,34012,179 11,123 10,401 10,979
3/31/96 10,30012,832 10,925 10,541 11,320
==== Asset Strategy Fund, Class B Shares (1)(2) -- $10,300
++++ S&P 500 Index (1) -- $12,832
**** Lehman Brothers Aggregate Bond Index (1) -- $10,925
*--*-- Salomon Brothers Short-Term Index for 1 Month Certificates of
Deposit (1) -- $10,541
---- Lipper Flexible Portfolio Universe Average (1) -- $11,320
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of
a month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
April 30, 1995.
(2) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
Average Annual Total Return *
Class B Class Y
-----------------------------
Aggregate Total
Return for Life
of Class B ** 0.00 N/A
Aggregate Total
Return for Life
of Class Y *** N/A -0.25%****
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
period shown is 3%.
**4-20-95 (the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
ASSET STRATEGY FUND
Stocks 40% OBJECTIVE: To seek high total return with
(can range from 10-60%) reduced risk over the
long-term.
Bonds 40%
(can range from 20-60%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 20% instruments, both in the
(can range from 0-70%) United States and abroad, which are
allocated in a mix that varies based on
the current outlook for the different
markets. (May purchase securities
subject to repurchase agreements. May
invest in certain options, futures and
other hedging techniques.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Asset Strategy
Fund from time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak may allow the Fund the
opportunity to capture profits and
attempt to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY,
when deemed appropriate, may be used in
the management of the portfolio.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY(March, June, September and
December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 1996
- -------------------------------------------
DIVIDENDS PAID $0.15
=====
NET ASSET VALUE ON
3/31/96 $10.15
4/20/95 10.00
------
CHANGE PER SHARE $ 0.15
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Aggregate Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
Period from 4-20-95*
through 3-31-96 0.00% 3.00%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, Asset Strategy Fund had net assets totaling $13,222,457
invested in a diversified portfolio of:
43.21% Cash and Cash Equivalents
26.02% Common Stocks
22.18% United States Government Securities
8.59% Corporate Debt Securities
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
March 31, 1996, your Fund owned:
$43.21Cash and Cash Equivalents
26.02Common Stocks
22.18United States Government Securities
8.59 Corporate Debt Securities
Not all holdings will be represented in the portfolio at all times.
<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 59.
<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 59.
<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 59.
<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 59.
<PAGE>
WADDELL & REED LIMITED-TERM BOND FUND
MANAGER'S LETTER
MARCH 31, 1996
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Limited-Term Bond Fund for the
fiscal year ended March 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the past fiscal year, the Federal Reserve Bank cut short-term interest
rates in response to slowing economic growth. The combination of lower short-
term interest rates, low inflation, the introduction of balanced budget
legislation and heavy demand for U.S. Treasury Securities by foreign central
banks positively impacted the bond markets. In the final quarter of the fiscal
year, signs of economic strength and a breakdown of the balanced budget
negotiations fueled a sharp correction in the fixed income markets.
In order to take advantage of the falling yields and rising prices that
prevailed during the most of the fiscal year, the Fund increased the average
maturity of its portfolio and minimized its cash position. As indications of a
strengthening economy appeared, cash levels were increased and more defensive
mortgage-backed securities were purchased. This strategy allowed for some
preservation of capital while maintaining an acceptable level of income.
The strategies and techniques we applied resulted in the direction of the Fund's
performance remaining fairly consistent with that of the indexes charted on the
following page. Those indexes generally represent the short-maturity sector of
the bond market (the Lehman Brothers Mutual Fund Short Investment Grade Debt
Index) and the universe of funds with similar investment objectives (the Lipper
Short Investment Grade Debt Fund Universe Average).
We believe that the recent decline in bond prices has pushed yields to
attractive levels. Heading into the new fiscal year, the Federal Reserve Bank
is pursuing a restrictive monetary policy by maintaining a high federal funds
rate. We expect the restrictive policy of the Federal Reserve Bank to result in
slower economic growth and continued low inflation. If the economic growth
begins to slow as anticipated, we intend to lengthen the average maturity of the
Fund's holdings and focus on higher-rated securities that typically do
relatively well in a period of slowing economic activity.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
W. Patrick Sterner
Manager, Limited-Term Bond Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LIMITED-TERM BOND FUND CLASS B SHARES,
THE LEHMAN BROTHERS MUTUAL FUND SHORT INVESTMENT GRADE DEBT INDEX,
AND THE LIPPER SHORT INVESTMENT GRADE DEBT FUND UNIVERSE AVERAGE
Limited- Lehman Lipper
Term BrothersShort Investment
BondMutual Fund Grade Debt
Fund,Short Investment Fund
Class BGrade Debt Universe
Shares Index Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,206 10,333 10,236
03/31/94 10,350 10,710 10,517
03/31/95 10,632 11,264 10,868
03/31/96 11,419 12,345 11,654
===== Limited-Term Bond Fund, Class B Shares (1) (2) -- $11,419
+++++ Lehman Brothers Mutual Fund Short Investment Grade Debt Index (1) --
$12,345
- ---------- Lipper Short Investment Grade Debt Fund Universe Average (1) --
$11,654
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of
a month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
Average Annual Total Return *
Class B Class Y
-----------------------------
Year Ended
3/31/96 4.41% N/A
3+ Years Ended
3/31/96** 3.93% N/A
Aggregate Total
Return for Life
of Class Y *** N/A -0.49%****
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (3+ Years).
**9-21-92(the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
LIMITED-TERM BOND FUND
PORTFOLIO STRATEGY:
OBJECTIVE: High level of current income
Dollar-weighted average consistent with
maturity of portfolio is preservation of capital.
between two and five years.
At least 65% investment-grade
bonds.
STRATEGY: Invests primarily in debt securities of
investment grade, including debt
securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities, with the portfolio
having a dollar-weighted average
maturity of not less than two years, but
not more than five years. (May purchase
securities subject to repurchase
agreements. May invest in certain
options, futures and other hedging
techniques.)
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- -------------------------------------------
DIVIDENDS PAID $0.42
======
NET ASSET VALUE ON
3/31/96 $10.00
3/31/95 9.70
------
CHANGE PER SHARE $0.30
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-96 4.41% 7.41%
Period from 9-21-92*
through 3-31-96 3.93% 3.93%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, Limited-Term Bond Fund had net assets totaling $23,682,530
invested in a diversified portfolio of:
95.42% Bonds
4.58% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 1996, your Fund owned:
Corporate Bonds $67.28
U.S. Government Securities 28.14
Cash and Cash Equivalents 4.58
Not all holdings will be represented in the portfolio at all times.
<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 59.
<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 59.
<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 59.
<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 59.
<PAGE>
WADDELL & REED MUNICIPAL BOND FUND
MANAGER'S LETTER
MARCH 31, 1996
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Municipal Bond Fund for the fiscal
year ended March 31, 1996. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
During the past fiscal year the Federal Reserve Bank lowered the federal funds
rate three times fueling an increase in bond prices. Prospects of balanced
budget legislation also contributed to the rally in bond prices. Recently,
indications that the economy was strengthening, prospects of slightly higher
inflation and a stalemate in the balanced budget negotiations have negatively
impacted the bond market. Proposals during the year to simplify the federal tax
scheme in ways that might affect the tax-exempt nature of municipal bond
interest appear to have lost their widespread support and municipal bonds are
again trading near traditional spreads to taxable bonds.
The Fund continued to pursue a strategy of seeking increased yields in its
municipal bond investments. To increase yields, the Fund increased its
investments in intermediate to long-term securities during the fiscal year.
The strategies and techniques we applied resulted in the direction of the Fund's
performance remaining fairly consistent with that of the indexes charted on the
following page. Those indexes reflect the performance of securities that
generally represent the municipal bond market (the Lehman Brothers Municipal
Bond Index) and the universe of funds with similar investment objectives (the
Lipper General Municipal Debt Fund Universe Average).
Recent economic indicators point toward a moderate strengthening of the economy.
With the prospect of slightly higher economic growth and inflation, we expect
the Federal Reserve Bank to continue its restrictive monetary policy. The Fund
will continue to focus on seeking the most attractive municipal bond
opportunities available with emphasis on current income.
Thank you for your continued support and confidence in our organization.
Respectfully
John M. Holliday
Manager, Municipal Bond Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
MUNICIPAL BOND FUND B SHARES,
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX,
AND THE LIPPER GENERAL MUNICIPAL DEBT FUND UNIVERSE AVERAGE
Lehman Lipper
MunicipalBrothers General
Bond Municipal Municipal
Fund Bond Debt Fund
Class B Index Universe
Shares Average
------------------ ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,700 10,560 10,576
03/31/94 10,782 10,805 10,759
03/31/95 11,469 11,608 11,432
03/31/96 12,327 12,581 12,242
===== Municipal Bond Fund, Class B Shares (1) (2)-- $12,327
+++++ Lehman Brothers Municipal Bond Index (1) -- $12,581
- ---------- Lipper General Municipal Debt Fund Universe Average (1) -- $12,242
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of
a month, and partial month calculations of the performance of the indexes
(including income) are not available, the investments were effected as of
September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing
expenses of the Fund.
Average Annual Total Return *
Class B Class Y
-----------------------------
Year Ended
3/31/96 4.48% N/A
3+ Years Ended
3/31/96** 6.22% N/A
Aggregate Total
Return for Life
of Class Y *** N/A -1.80%****
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (3+ Years).
**9-21-92 (the initial offering date) through 3-31-96
***12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/96.
****Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
MUNICIPAL BOND FUND
PORTFOLIO STRATEGY:
Minimum 80% OBJECTIVE: Income which is not subject
Municipal Bonds. to Federal income taxation.
(Income may be subject to state
Maximum 5% non-investment and local taxes, and a portion
grade debt securities. may be subject to Federal taxes,
including alternative minimum
Less than 25% of its assets tax.)
in securities of issuers
located in any single state.
STRATEGY: Invests in municipal bonds (debt
securities the interest on which is
generally exempt from Federal income
tax). (May invest in certain options,
futures and other hedging techniques.)
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- ----------------------------------------
DIVIDENDS PAID $0.43
=====
NET ASSET VALUE ON
3/31/96 $10.63
3/31/95 10.30
------
CHANGE PER SHARE $0.33
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-96 4.48% 7.48%
Period from 9-21-92*
through 3-31-96 6.22% 6.22%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1996, Municipal Bond Fund had net assets totaling $33,869,851
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 1996, your Fund owned:
Other Municipal Bonds $13.14
Cash and Cash Equivalents 11.26
Hospital Revenue Bonds 11.04
Resource Recovery Revenue Bonds 10.42
Adjustable Rate Bonds 9.60
Industrial Revenue Bonds 7.96
Electric Utility Revenue Bonds 7.13
Housing Revenue Bonds 6.24
Transportation Revenue Bonds 5.49
Public Power Revenue Bonds 5.24
Special Tax Bonds 4.65
Water & Sewer Revenue Bonds 4.23
Zero Coupon Bonds 3.60
Not all holdings will be represented in the portfolio at all times.
<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 59.
<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 59.
<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 59.
<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 59.
<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 59.
<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% $33,869,851
See Notes to Schedules of Investments on page 59.
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 1996
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Principal amounts are denominated in the indicated foreign currency where
applicable ($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 67-78.
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
Total Limited- Municipal Global
Return Growth Term Bond Bond Income
Fund Fund Fund Fund Fund
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) .. 6,249,30113,371,790 (78,479)1,079,863 203,578
--------------------------------------------------------
- -
Net increase in net assets
resulting from operations5,821,96516,015,277320,0801,536,534 412,326
--------------------------------------------------------
- -
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**37,133,48342,742,909910,2162,048,542 907,668
--------------------------------------------------------
- -
Total increase . 42,955,44857,158,651 747,631 2,473,597 906,092
Net Assets
Beginning of period 61,735,28743,524,27711,671,13524,960,48510,282,309
--------------------------------------------------------
- -
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.
<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>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares in Total Return Fund, Growth Fund or Asset Strategy Fund,
respectively, owned by you on the record dates, will give you the total amounts
to be reported in your Federal income tax return for the years in which they
were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
----------------------------------------------------------
For Individuals For Corporations
--------------------------- ------------------------------
Long-Term Non- Long-Term
Record Ordinary Non- Capital Qual- Qual- Non- Capital
Date Total Income Taxable Gain ifying ifying Taxable Gain
- --------------------------------------------------------------------------
Total Return Fund
Class B
12-15-95$0.047$--- $--- $0.0470$--- $--- $--- $0.0470
------ ------ ------ ------ ------ ------ ----- ------
$0.047$--- $--- $0.0470$--- $--- $--- $0.0470
====== ====== ====== ====== ====== ====== ===== ======
Growth Fund
Class B
12-15-95$0.371 $0.2465$--- $0.1245$--- $0.2465$--- $0.1245
------ ------ ------ ------ ------ ------ ----- ------
$0.371 $0.2465$--- $0.1245$--- $0.2465$--- $0.1245
====== ====== ====== ====== ====== ====== ===== ======
Asset Strategy Fund
Class B
6-16-95$0.02 $0.0200$--- $--- $0.0040 $0.0160--- ---
9-15-95 0.03 0.0300 --- --- .0059 .0241--- ---
12-15-95 0.06 0.0600 --- --- .0119 .0481--- ---
3-15-96 0.04 0.0400 --- --- .0064 .0336--- ---
------ ------ ------ ------ ------ ------ ----- ------
$0.15 $0.1500$--- $--- $0.0282 $0.1218$--- $---
====== ====== ====== ====== ====== ====== ===== ======
Asset Strategy Fund
Class Y
3-15-96$0.055 $0.0550$--- $--- $0.0088 $0.0462--- ---
------ ------ ------ ------ ------ ------ ----- ------
$0.055$ $0.0550$--- $--- $0.0088 $0.0462$--- $---
====== ====== ====== ====== ====== ====== ===== ======
Dividends are declared and recorded by each Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly on the 27th of the
month or on the preceding business day if the 27th is a weekend or holiday.
Exempt Interest Dividends - The exempt interest portion of dividends paid
represents the distribution of state and municipal bond interest and is exempt
from Federal income taxation.
The table below shows the taxability of dividends and long-term capital gains
paid during the fiscal year ended March 31, 1996:
PER-SHARE AMOUNTS REPORTABLE AS:
---------------------------------------------------------
For Individuals For Corporations
--------------------------- ------------------------------
Long-Term Non- Long-Term
Record Ordinary Non- Capital Qual- Qual- Non- Capital
Date Income Taxable Gain ifying ifying Taxable Gain
- --------------------------------------------------------------------------
Limited-Term Bond Fund
Class B and Class Y
April through
March 1996 100.00% ---% ---% ---% 100.00%---% ---%
International Growth Fund
Class B
April through
March 1996 100.00% ---% ---% ---% 100.00%---% ---%
Long-Term
Record Exempt Non- Non- Capital
Date Total Interest Exempt Taxable Gain
- -------- --------- -------- ------- ------- --------
Municipal Bond Fund
Class B and Class Y
April through
December
1995 100.00% 95.3933% 4.6067%---% ---%
January through
March
1996 100.00% 94.8580% 5.1420%---% ---%
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Income from Municipal Bond Fund may be subject to the alternative minimum tax.
Shareholders are advised to consult with their tax advisor concerning the tax
treatment of dividends and distributions from all Funds.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Thomas A. Mengel, Vice President
Sharon K. Pappas, Vice President and Secretary
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
Russell E. Thompson, Vice President
James D. Wineland, Vice President
This report is submitted for the general information of the shareholders of
Waddell & Reed Funds, Inc. It is not authorized for distribution to prospective
investors unless accompanied with or preceded by the Waddell & Reed Funds, Inc.
current prospectus.
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election not to
have taxes withheld. The election may be made by submitting forms provided by
Waddell & Reed, Inc. which can be obtained from your Waddell & Reed
representative or by submitting Internal Revenue Service form W-4P. Once made,
an election can be revoked by providing written notice to Waddell & Reed, Inc.
If you elect not to have tax withheld you may be required to make payments of
estimated tax. Penalties may be imposed by the IRS if withholding and estimated
tax payments are not adequate.
<PAGE>
WADDELL & REED FUNDS, INC.
Total Return Fund
Growth Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
Municipal Bond Fund
- ------------------------------------
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303
Our INTERNET address is:
http://www.waddell.com
WRR3000A(3-96)
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