WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
Municipal Bond Fund
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1996
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1996
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. Our goal to provide the best service
possible to our shareholders has not changed since we opened our doors nearly 60
years ago. Waddell & Reed's team of professionals, including the Fund's
manager, our customer service representatives and your personal account
representative continue to strive to meet your financial needs.
Waddell & Reed plays a special role in the investment industry. We take
pride in being one of the few financial services firms committed to locally
based account representatives who provide the personal service you need. When
you're ready to evaluate your financial plan to keep up with life's changes, or
to find an answer to a financial question that you may have, your representative
is ready to assist you--when you need it. He or she is available to help you
plan for your retirement, fund a child's education or make plans for other long-
term financial goals.
All of us are committed to helping you meet the financial goals that are
important to you. This is accomplished by our offering investment products to
meet a variety of personal financial objectives, along with the personal service
to make the investment process more convenient and accessible.
We want to continue to meet your financial needs for many years to come.
Should you have any questions about your account or other financial issues that
are important to you, contact your personal account representative or your local
Waddell & Reed office. They're ready to help you make the most of your
financial future.
Respectfully,
Keith A. Tucker
President
<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)
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months ended September 30, 1996
- ----------------------------------------
NET ASSET VALUE ON
9/30/96 $17.15
3/31/96 16.34
------
CHANGE PER SHARE $ 0.81
======
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 9-30-96 10.03% 13.03%
Period from 9-21-92*
through 9-30-96 14.47% 14.47%
*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 each 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 each 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 September 30, 1996, Total Return Fund had net assets totaling $263,763,240
invested in a diversified portfolio of:
91.48% Common Stocks
8.52% Cash and Cash Equivalents
As a shareholder of Total Return Fund, for every $100 you had invested on
September 30, 1996, your Fund owned:
$57.71 Manufacturing Stocks
10.34 Services Stocks
8.52 Cash and Cash Equivalents
8.50 Transportation, Communication, Electric
and Sanitary Services Stocks
7.97 Wholesale and Retail Trade Stocks
4.88 Finance, Insurance and Real Estate Stocks
2.08 Contract Construction Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.85%
Walt Disney Company (The) .............. 35,500 $ 2,249,813
Apparel and Accessory Stores - 1.20%
Gap, Inc. (The) ........................ 109,500 3,161,813
Apparel and Other Textile Products - 1.24%
Tommy Hilfiger Corporation* ............ 55,100 3,264,675
Automotive Dealers and Service Stations - 0.37%
AutoZone, Inc.* ........................ 33,700 977,300
Building Materials and Garden Supplies - 0.84%
Home Depot, Inc. (The) ................. 38,800 2,206,750
Business Services - 3.34%
cisco Systems, Inc.* ................... 86,500 5,368,363
Discreet Logic Inc.* ................... 10,000 77,500
Electronic Data Systems Corporation .... 54,900 3,369,488
Total ................................. 8,815,351
Chemicals and Allied Products - 13.49%
Abbott Laboratories .................... 55,800 2,748,150
Air Products and Chemicals, Inc. ....... 58,400 3,401,800
Amgen Inc.* ............................ 21,800 1,377,477
Colgate-Palmolive Company .............. 30,500 2,649,687
Crompton & Knowles Corporation ......... 43,500 712,312
Dow Chemical Company (The) ............. 29,200 2,343,300
du Pont (E.I.) de Nemours and Company .. 50,800 4,483,100
Geon Company (The) ..................... 40,700 946,275
IMC Global, Inc. ....................... 30,400 1,189,400
Merck & Co., Inc. ...................... 35,400 2,491,275
PPG Industries, Inc. ................... 63,500 3,452,812
Pfizer Inc. ............................ 33,000 2,611,125
Praxair, Inc. .......................... 50,800 2,184,400
Procter & Gamble Company (The) ......... 30,500 2,973,750
Union Carbide Corporation .............. 44,400 2,025,750
Total ................................. 35,590,613
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS(Continued)
Communication - 2.75%
AT&T Corporation ....................... 25,400 $ 1,327,150
MCI Communications Corporation ......... 95,200 2,433,502
MFS Communications Company, Inc.* ...... 25,000 1,089,050
SBC Communications Inc. ................ 24,800 1,193,500
360 Communications Company* ............ 51,500 1,210,250
Total ................................. 7,253,452
Depository Institutions - 2.16%
Citicorp ............................... 29,700 2,691,562
First Bank System, Inc. ................ 25,400 1,698,625
Norwest Corporation .................... 32,200 1,316,175
Total ................................. 5,706,362
Electric, Gas and Sanitary Services - 0.38%
WMX Technologies, Inc. ................. 30,500 1,002,688
Electronic and Other Electric Equipment - 11.82%
AMP Incorporated ....................... 55,900 2,166,125
Analog Devices, Inc.* .................. 118,350 3,210,244
Duracell International Inc. ............ 50,800 3,257,550
Emerson Electric Co. ................... 20,300 1,829,537
General Electric Company ............... 60,900 5,541,900
Harman International Industries,
Incorporated .......................... 7,980 389,025
Intel Corporation ...................... 77,700 7,415,455
LSI Logic Corporation* ................. 54,400 1,264,800
Molex Incorporated, Class A ............ 33,750 1,134,844
Motorola, Inc. ......................... 66,000 3,407,250
Rival Company (The) .................... 69,700 1,550,825
Total ................................. 31,167,555
Fabricated Metal Products - 2.24%
Gillette Company (The) ................. 50,800 3,663,950
Parker Hannifin Corporation ............ 30,500 1,281,000
TRINOVA Corporation .................... 30,500 960,750
Total ................................. 5,905,700
Food and Kindred Products - 1.90%
CPC International Inc. ................. 25,400 1,901,825
Pepsi-Cola Puerto Rico Bottling Company,
Class B ............................... 48,500 230,375
PepsiCo, Inc. .......................... 101,600 2,870,200
Total ................................. 5,002,400
Food Stores - 0.48%
Kroger Co. (The)* ...................... 28,400 1,270,900
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS(Continued)
Furniture and Home Furnishings Stores - 1.11%
Circuit City Stores, Inc. .............. 81,200 $ 2,933,350
General Building Contractors - 0.30%
Pulte Corporation ...................... 31,100 796,938
General Merchandise Stores - 3.97%
Dayton Hudson Corporation .............. 70,800 2,336,400
Kmart Corporation ...................... 179,900 1,843,975
May Department Stores Company (The) .... 50,800 2,470,150
OfficeMax, Inc.* ....................... 43,875 614,250
Penney (J.C.) Company, Inc. ............ 34,300 1,856,488
Wal-Mart Stores, Inc. .................. 50,800 1,339,850
Total ................................. 10,461,113
Health Services - 1.31%
Columbia/HCA Healthcare Corporation .... 19,000 1,080,625
Tenet Healthcare Corporation* .......... 50,800 1,130,300
Vencor, Incorporated* .................. 38,600 1,244,850
Total ................................. 3,455,775
Heavy Construction, Excluding Building - 0.81%
Fluor Corporation ...................... 20,300 1,248,450
Foster Wheeler Corporation ............. 20,300 888,125
Total ................................. 2,136,575
Hotels and Other Lodging Places - 0.97%
ITT Corporation* ....................... 58,400 2,547,700
Industrial Machinery and Equipment - 7.33%
Applied Materials, Inc.* ............... 87,800 2,430,919
Case Corporation ....................... 62,200 3,032,250
Caterpillar Inc. ....................... 70,000 5,276,250
Deere & Company ........................ 104,300 4,380,600
Harnischfeger Industries, Inc. ......... 30,500 1,151,375
Hewlett-Packard Company ................ 43,200 2,106,000
Ingersoll-Rand Company ................. 20,300 964,250
Total ................................. 19,341,644
Instruments and Related Products - 2.95%
Baxter International Inc. .............. 50,800 2,374,900
General Motors Corporation, Class H .... 8,900 513,975
Medtronic, Inc. ........................ 40,600 2,603,475
Xerox Corporation ...................... 42,600 2,284,425
Total ................................. 7,776,775
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS(Continued)
Insurance Carriers - 0.98%
Aetna Life & Casualty Company .......... 17,200 $ 1,210,450
United HealthCare Corporation .......... 33,000 1,373,625
Total ................................. 2,584,075
Lumber and Wood Products - 0.65%
Georgia-Pacific Corporation ............ 21,600 1,709,100
Nondepository Institutions - 1.74%
Federal Home Loan Mortgage Corporation . 25,400 2,486,025
Federal National Mortgage Association .. 59,900 2,089,013
Total ................................. 4,575,038
Paper and Allied Products - 2.56%
Champion International Corporation ..... 25,400 1,165,225
International Paper Company ............ 60,900 2,588,250
Union Camp Corporation ................. 25,400 1,241,425
Weyerhaeuser Company ................... 38,100 1,757,363
Total ................................. 6,752,263
Petroleum and Coal Products - 1.43%
Mobil Corporation ...................... 10,800 1,250,100
Royal Dutch Petroleum Company .......... 16,200 2,529,225
Total ................................. 3,779,325
Prepackaged Software - 3.87%
Computer Associates International,
Inc. .................................. 28,500 1,702,875
Informix Corporation* .................. 76,200 2,128,799
Microsoft Corporation* ................. 21,200 2,794,414
Oracle Systems Corporation* ............ 83,800 3,566,696
Total ................................. 10,192,784
Primary Metal Industries - 1.04%
Aluminum Company of America ............ 33,600 1,982,400
Nucor Corporation ...................... 15,200 771,400
Total ................................. 2,753,800
Railroad Transportation - 2.75%
CSX Corporation ........................ 35,500 1,792,750
Conrail Inc. ........................... 30,500 2,207,437
Norfolk Southern Corporation ........... 15,200 1,388,900
Union Pacific Corporation .............. 25,400 1,860,550
Total ................................. 7,249,637
Rubber and Miscellaneous Plastics Products - 1.97%
Armstrong World Industries, Inc. ....... 45,700 2,850,537
Goodyear Tire & Rubber Company (The) ... 50,800 2,343,150
Total ................................. 5,193,687
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS(Continued)
Special Trade Contractors - 0.97%
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 101,500 $ 2,569,168
Transportation by Air - 2.62%
AMR Corporation* ....................... 20,300 1,616,387
Southwest Airlines Co. ................. 125,700 2,875,387
USAir Group, Inc.* ..................... 147,200 2,428,800
Total ................................. 6,920,574
Transportation Equipment - 9.09%
AlliedSignal Inc. ...................... 38,300 2,523,012
Boeing Company (The) ................... 32,200 3,042,900
Chrysler Corporation ................... 111,800 3,200,275
Dana Corporation ....................... 38,600 1,167,650
Eaton Corporation ...................... 25,400 1,533,525
Ford Motor Company ..................... 96,500 3,015,625
General Motors Corporation ............. 50,800 2,438,400
Northrop Grumman Corporation ........... 46,700 3,747,675
Sundstrand Corporation ................. 17,200 670,800
United Technologies Corporation ........ 21,900 2,630,738
Total ................................. 23,970,600
TOTAL COMMON STOCKS - 91.48% $241,275,293
(Cost: $187,229,710)
TOTAL SHORT-TERM SECURITIES - 8.60% $ 22,687,956
(Cost: $22,687,956)
TOTAL INVESTMENT SECURITIES - 100.08% $263,963,249
(Cost: $209,917,666)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.08%) (200,009)
NET ASSETS - 100.00% $263,763,240
See Notes to Schedules of Investments on page 47.
<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)
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- -------------------------------------------
NET ASSET VALUE ON
9/30/96 $22.01
3/31/96 21.00
------
CHANGE PER SHARE $ 1.01
======
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 9-30-96 8.04% 11.04%
Period from 9-21-92*
through 9-30-96 23.74% 23.74%
*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 each 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 each 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 September 30, 1996, Growth Fund had net assets totaling $252,396,665 invested
in a diversified portfolio of:
62.69% Common Stocks
37.31% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on September
30, 1996, your Fund owned:
$37.31 Cash and Cash Equivalents
36.31 Services Stocks
12.01 Manufacturing Stocks
5.45 Transportation, Communication, Electric
and Sanitary Services Stocks
5.25 Wholesale and Retail Trade Stocks
3.67 Finance, Insurance and Real Estate Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Business Services - 15.16%
America Online, Inc.* .................. 160,000 $ 5,700,000
CKS Group, Inc.* ....................... 150,000 3,515,550
CUC International Inc.* ................ 100,000 3,987,500
Cerner Corporation* .................... 90,000 1,400,580
CompuServe Corporation* ................ 100,000 1,362,500
FactSet Research Systems, Inc.* ........ 103,900 1,987,086
HBO & Company .......................... 55,900 3,720,816
HCIA Inc.* ............................. 70,000 4,226,250
Health Management Systems, Inc.* ...... 90,000 2,655,000
IMNET Systems, Inc.* ................... 76,000 1,467,712
Mecon, Inc.* ........................... 100,000 2,493,700
PHAMIS, Inc.* .......................... 110,000 1,821,820
Shared Medical Systems Corporation ..... 3,400 193,161
Shiva Corporation* ..................... 65,000 3,729,375
Total ................................. 38,261,050
Chemicals and Allied Products - 0.96%
Watson Pharmaceuticals Inc.* ........... 64,500 2,426,813
Communication - 5.01%
Intermedia Communications of
Florida, Inc.* ........................ 150,000 4,434,300
MFS Communications Company, Inc.* ...... 140,000 6,098,680
SCB Computer Technology, Inc.* ......... 110,000 2,117,500
Total ................................. 12,650,480
Electronic and Other Electric Equipment - 5.84%
Ascend Communications, Inc.* ........... 100,000 6,606,200
Cascade Communications Corp.* .......... 100,000 8,143,700
Total ................................. 14,749,900
Engineering and Management Services - 0.82%
Transition Systems, Inc.* .............. 100,000 2,075,000
Furniture and Home Furnishings Stores - 0.55%
Williams-Sonoma, Inc.* ................ 48,750 1,386,304
Health Services - 5.96%
ARV Assisted Living, Inc.* ............. 61,000 907,375
American Healthcorp, Inc.* ............. 177,000 1,913,724
Emeritus Corporation* .................. 100,000 1,575,000
HealthPlan Services Corporation* ....... 100,000 2,187,500
Inphynet Medical Management Inc.* ...... 90,000 1,620,000
Physicians Resource Group, Inc.* ....... 155,000 3,661,875
Quorum Health Group, Inc.* ............. 50,000 1,231,250
Vencor, Incorporated* .................. 60,000 1,935,000
Total ................................. 15,031,724
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Industrial Machinery and Equipment - 0.51%
Franklin Electronic Publishers, Inc.* .. 100,000 $ 1,275,000
Instruments and Related Products - 3.23%
Boston Scientific Corporation* ......... 60,000 3,450,000
St. Jude Medical, Inc.* ................ 58,034 2,346,721
STERIS Corporation* .................... 70,000 2,358,090
Total ................................. 8,154,811
Insurance Agents, Brokers and Services - 1.28%
CRA Managed Care, Inc.* ................ 60,000 3,225,000
Insurance Carriers - 0.83%
United HealthCare Corporation .......... 50,000 2,081,250
Miscellaneous Retail - 4.70%
Books-A-Million, Inc.* ................. 50,000 396,850
MSC Industrial Direct Co., Inc.* ....... 50,000 1,781,250
OmniCare, Inc. ......................... 137,600 4,196,800
Tiffany & Co. .......................... 110,000 4,400,000
Tractor Supply Company* ............... 50,000 1,087,500
Total ................................. 11,862,400
Personal Services - 2.58%
Block (H&R), Inc. ...................... 60,000 1,785,000
Equity Corporation International* ...... 150,000 4,734,300
Total ................................. 6,519,300
Prepackaged Software - 11.79%
Broderbund Software, Inc.* ............. 34,100 980,375
Dendrite International, Inc.* .......... 130,000 3,989,310
Electronic Arts Inc.* .................. 50,000 1,865,600
Expert Software, Inc.* ................. 150,000 1,050,000
GT Interactive Software Corp.* ......... 120,000 2,745,000
HPR Inc.* .............................. 160,000 2,580,000
Macromedia, Inc.* ..................... 60,200 1,249,150
Medic Computer Systems, Inc.* .......... 50,000 1,818,750
Microsoft Corporation* ................. 10,000 1,318,120
Parametric Technology Corporation* ..... 130,000 6,426,810
Premenos Technology Corp.* ............. 100,000 2,062,500
Summit Medical Systems, Inc.* .......... 65,000 897,780
Synopsys, Inc.* ........................ 60,000 2,767,500
Total ................................. 29,750,895
Real Estate - 1.56%
Stewart Enterprises, Inc., Class A ..... 116,100 3,947,400
Stone, Clay and Glass Products - 0.57%
Department 56, Inc.* ................... 58,200 1,447,725
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 0.90%
Gentex Corporation* .................... 100,000 $ 2,268,700
Trucking and Warehousing - 0.44%
Heartland Express, Inc.* ............... 38,489 1,106,559
TOTAL COMMON STOCKS - 62.69% $158,220,311
(Cost: $107,343,359)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 3.17%
Hercules Inc.,
5.38%, 10-4-96 ........................ $8,000 7,996,413
Communication - 1.47%
GTE Corporation,
5.4%, 10-7-96 ......................... 3,710 3,706,661
Depository Institutions - 0.81%
U.S. Bancorp,
Master Note ........................... 2,063 2,063,000
Electric, Gas and Sanitary Services - 9.44%
Dominion Resources Inc.,
5.45%, 10-16-96 ....................... 8,000 7,981,833
Public Service Company of Colorado,
5.5%, 10-1-96 ......................... 8,400 8,400,000
Public Service Electric & Gas Co.,
5.45%, 10-3-96 ........................ 3,445 3,443,957
Questar Corp.,
5.28%, 10-4-96 ........................ 4,000 3,998,240
Total.................................. 23,824,030
Food and Kindred Products - 4.78%
General Mills, Inc.,
Master Note ........................... 2,102 2,102,000
Heinz (H. J.) Company,
5.35%, 10-23-96 ....................... 2,500 2,491,826
Quaker Oats Co.,
5.58%, 10-8-96 ........................ 1,490 1,488,384
Ralston Purina Co.,
5.47%, 10-25-96 ....................... 6,000 5,978,120
Total ................................. 12,060,330
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Metal Mining - 0.12%
BHP Finance (USA) Inc.,
5.4%, 10-28-96 ........................ $ 300 $ 298,785
Nondepository Institutions - 6.91%
Associates Corporation of North America,
5.29%, 10-3-96 ........................ 6,000 5,998,237
International Business Machines Credit Corp.,
5.35%, 10-25-96 ....................... 5,480 5,460,455
Island Finance Puerto Rico Inc.,
5.37%, 10-11-96 ....................... 5,985 5,976,072
Total ................................. 17,434,764
Printing and Publishing - 2.10%
American Greetings Corp.,
5.38%, 10-10-96 ....................... 5,320 5,312,845
Security and Commodity Brokers - 0.38%
Merrill Lynch & Co., Inc.,
5.36%, 10-9-96 ........................ 960 958,856
Tobacco Products - 1.00%
B.A.T. Capital Corp.,
5.32%, 10-7-96 ........................ 2,520 2,517,766
Transporation Equipment - 4.70%
Dana Credit Corp.,
5.48%, 10-11-96 ....................... 5,245 5,237,016
Echlin Inc.:
5.35%, 10-7-96 ........................ 4,590 4,585,907
5.41%, 11-8-96 ........................ 2,060 2,048,236
Total ................................. 11,871,159
Wholesale Trade - Nondurable Goods - 1.32%
Sara Lee Corporation,
Master Note ........................... 3,330 3,330,000
Total Commercial Paper - 36.20% 91,374,609
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Municipal Obligations - 0.79%
Indiana
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds
(Amoco Oil Company Project), Taxable
Series 1995, Amoco Oil Whiting Industry,
5.4%, 11-22-96 ........................ $ 2,000 $ 2,000,000
TOTAL SHORT-TERM SECURITIES - 36.99% $ 93,374,609
(Cost: $93,374,609)
TOTAL INVESTMENT SECURITIES - 99.68% $251,594,920
(Cost: $200,717,968)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.32% 801,745
NET ASSETS - 100.00% $252,396,665
See Notes to Schedules of Investments on page 47.
<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.)
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)
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- -------------------------------------------
NET ASSET VALUE ON
9/30/96 $10.72
3/31/96 9.94
------
CHANGE PER SHARE $ 0.78
======
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 9-30-96 1.93% 4.93%
Period from 9-21-92*
through 9-30-96 4.50% 4.50%
*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 each 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 each 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 September 30, 1996, International Growth Fund had net assets totaling
$29,203,198 invested in a diversified portfolio of:
88.15% Common Stocks
4.94% Cash and Cash Equivalents and Open Forward Currency Contracts
4.56% Preferred Stocks
2.35% Other Government Securities
As a shareholder of International Growth Fund, for every $100 you had invested
on September 30, 1996, your Fund owned:
88.15% Common Stocks
4.94% Cash and Cash Equivalents and Open Forward Currency Contracts
4.56% Preferred Stocks
2.35% Other Government Securities
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Argentina - 0.84%
Disco S.A., Sponsored ADR* ............. 12,500 $ 245,313
Australia - 1.42%
Westpac Banking Corporation Limited (A) 80,000 414,113
Denmark - 0.95%
Bang & Olufsen Holding A/S, Class B (A) 8,000 276,399
Finland - 1.06%
Nokia Corporation, Series K (A) ........ 7,000 308,907
France - 8.89%
Business Objects S.A., ADR* ............ 16,500 321,750
But S.A. (A) ........................... 4,200 281,464
Dassault Systemes S.A. (A)* ............ 25,000 1,047,840
Elf Aquitaine S.A. (A) ................. 4,000 312,919
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 1,500 308,832
Union Financiere de France Banque S.A. (A) 3,000 324,811
Total ................................. 2,597,616
Germany - 10.27%
CKAG Colonia Konzern Aktiengesellschaft (A) 4,000 307,975
Daimler-Benz AG (A)* .................... 9,500 522,279
Depfa Bank (A) ......................... 2,500 96,652
Douglas Holding AG (A) ................. 5,000 217,876
Mannesmann AG (A) ...................... 2,000 749,623
Metallgesellschaft AG (A)* ............. 20,000 353,843
Rofin-Sinar Technologies Inc.* ......... 30,000 322,500
SKW Trostberg AG (A) ................... 15,000 427,560
Total ................................. 2,998,308
Hong Kong - 6.51%
First Pacific Company Limited (A) ...... 300,000 453,905
Guangdong Corporation Limited (A) ...... 484,000 341,114
HSBC Holdings plc (A) .................. 25,000 463,927
JCG Holdings Ltd. (A) .................. 400,000 359,503
Wing Hang Bank Limited (A) ............. 75,000 281,266
Total ................................. 1,899,715
Indonesia - 1.85%
Pt Steady Safe Transportation
Service, F (A) ........................ 283,333 259,239
Pt United Tractors, F (A) .............. 150,000 280,947
Total ................................. 540,186
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Italy - 2.41%
Istituto Mobiliare Italiano SpA (A)* .... 25,500 $ 216,247
Mediolanum S.p.A. (A)* ................. 25,000 271,567
STET - Societa Financiaria
Telefonica p.a. (A) ................... 80,000 216,189
Total ................................. 704,003
Japan - 5.53%
Aloka Co. Ltd. (A) ..................... 7,000 99,749
Honda Motor Co., Ltd. (A) .............. 15,000 376,412
Promise Co., Ltd. (A) .................. 5,100 237,677
Sankyo Co., Ltd. (A) ................... 15,000 383,133
Sony Corporation (A) ................... 6,500 409,527
Xebio Co., Ltd. (A) .................... 3,000 107,277
Total ................................. 1,613,775
Mexico - 7.04%
Corporacion Industrial Sanluis,
S.A. de C.V., CPO (A) ................. 29,500 167,929
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B (A)* ............ 100,000 560,636
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS* .................... 25,000 381,250
Gruma, S.A. Class B (A)* ............... 50,000 312,790
Grupo Financiero Inbursa S.A. de
C.V., Class B (A) ..................... 80,000 312,790
Telefonos de Mexico, S.A. de C.V.,
ADR ................................... 10,000 321,250
Total ................................. 2,056,645
Netherlands - 6.92%
Baan Company N.V. (A)* ................. 9,500 320,736
Koninklijke Boskalis Westminster
N.V. (A) .............................. 17,500 341,414
Koninklijke PTT Nederland NV (A) ....... 9,000 309,638
Qiagen N.V. ADR* ....................... 15,000 442,500
Vendex International N.V. (A) .......... 7,000 272,722
Verenigd Bezit VNU (A) ................. 17,000 332,652
Total ................................. 2,019,662
Norway - 2.02%
Merkantildata A/S (A) .................. 25,000 357,615
Schibsted AS (A) ....................... 16,000 232,565
Total ................................. 590,180
Philippines - 1.38%
Universal Robina Corporation (A) ....... 800,000 404,117
Portugal - 0.88%
Portugal Telecom, S.A.,
Ordinary Shares ....................... 10,000 257,500
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Spain - 1.29%
Sociedad General de Aquas de
Barcelona, S.A. (A) ................... 10,000 $ 378,027
Sweden - 8.39%
Althin Medical AB, Class B (A) ......... 10,000 211,375
Astra AB, Class A (A) .................. 15,000 634,125
Celsius Industrier AB, Class B (A)* .... 7,000 89,834
Diligentia AB (A)* ..................... 9,000 107,348
Enator AB (A)* ......................... 12,500 275,542
Frontec AB, Class B (A)* ............... 16,000 188,426
Kinnevik AB, Series B (A) .............. 6,000 156,719
Skandia Enskilda Banken, Class A (A) ... 90,000 788,127
Total ................................. 2,451,496
Switzerland - 10.61%
Adia SA, Bearer Shares (A) ............. 1,500 412,416
Brauerei Eichhof AG (A) ................ 120 253,427
CS Holding, Registered Shares (A) ...... 5,000 494,103
Choco Lindt & Spru AG, Registered (A) .. 20 369,780
Ciba-Geigy AG, Registered (A) .......... 330 421,836
SMH Swiss Corporation (A) .............. 500 336,309
TAG Heuer International SA, ADR* ....... 20,000 395,000
Zurich Insurance Company (A) ........... 1,500 414,807
Total ................................. 3,097,678
Taiwan - 1.63%
Want Want Holdings Ltd.* ............... 200,000 476,000
United Kingdom - 8.26%
Corporate Services Group plc (A) ....... 225,000 612,737
Kingfisher plc (A) ..................... 50,000 495,745
Michael Page Group plc (A) ............. 60,000 354,026
Next plc (A) ........................... 38,500 341,352
Professional Staff plc, ADR* ........... 25,000 262,500
Vodafone Group Plc (A) ................. 100,000 346,670
Total ................................. 2,413,030
TOTAL COMMON STOCKS - 88.15% $25,742,670
(Cost: $22,850,919)
PREFERRED STOCKS - 4.56%
Germany
Marschollek, Lautenschlager und
Partner AG (A) ........................ 5,000 629,054
Moebel Walther AG (A) .................. 6,000 365,638
SAP Aktiengesellschaft (A) ............. 2,000 336,151
Total ................................. $ 1,330,843
(Cost: $1,129,470)
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES
Australia - 0.56%
Queensland Treasury Corporation,
12.0%, 5-15-97 (B) .................... $A200 $ 163,549
Sweden - 1.79%
Kingdom of Sweden,
10.75%, 1-23-97 (B) ................... SEK3,400 521,887
TOTAL OTHER GOVERNMENT SECURITIES - 2.35% $ 685,436
(Cost: $598,878)
Face
Amount in
Thousands
UNREALIZED GAIN ON OPEN FORWARD
CURRENCY CONTRACTS - 0.11%
Deutsche Marks, 10-2-96 (B) ............ DM1,800 17,911
Japanese Yen, 10-2-96 (B) .............. Y53,500 15,531
Total ................................. $ 33,442
TOTAL SHORT-TERM SECURITIES - 2.07% $ 606,000
(Cost: $606,000)
TOTAL INVESTMENT SECURITIES - 97.24% $28,398,391
(Cost: $25,185,267)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.76% 804,807
NET ASSETS - 100.00% $29,203,198
See Notes to Schedules of Investments on page 47.
<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)
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months ended September 30, 1996
- -------------------------------------------
DIVIDENDS PAID $0.09
=====
NET ASSET VALUE ON
9/30/96 $10.13
3/31/96 10.15
------
CHANGE PER SHARE $(0.02)
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Aggregate Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 9-30-96 -3.69% -0.76%
Period from 4-20-95*
through 9-30-96 0.49% 2.54%
*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 each 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 each 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 September 30, 1996, Asset Strategy Fund had net assets totaling $15,015,933
invested in a diversified portfolio of:
38.57% Cash and Cash Equivalents
29.06% Common Stocks
19.26% United States Government Securities
13.11% Corporate Debt Securities
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
September 30, 1996, your Fund owned:
$38.57Cash and Cash Equivalents
29.06Common Stocks
19.26United States Government Securities
13.11 Corporate Debt Securities
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Chemicals and Allied Products - 4.55%
Genentech, Inc.* ....................... 1,000 $ 52,875
IMC Global, Inc. ....................... 7,500 293,438
Nalco Chemical Company ................. 9,300 337,125
Total ................................. 683,438
Communication - 3.66%
Nokia Corporation, Series A, ADS ....... 6,300 278,775
360 Communications Company* ............ 11,500 270,250
Total ................................. 549,025
Electronic and Other Electric Equipment - 2.84%
QUALCOMM Incorporated* ................. 10,000 426,250
Food and Kindred Products - 3.99%
Seagram Company Ltd. (The) ............. 8,000 299,000
Whitbread and Company, Public Limited
Company (A) ........................... 27,500 300,636
Total ................................. 599,636
Heavy Construction, Excluding Building - 1.79%
Koninklijke Boskalis Westminster N.V. (A) 13,812 269,463
Holding and Other Investment Offices - 2.75%
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (A)* ...... 110,000 237,641
Grupo Financiero Banamex Accival,
S.A. de C.V., L (A)* .................. 3,300 6,736
LTC Properties, Inc. ................... 10,300 168,662
Total ................................. 413,039
Oil and Gas Extraction - 1.61%
Enron Oil & Gas Company ................ 9,700 241,287
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Petroleum and Coal Products - 2.43%
Kerr-McGee Corporation ................. 6,000 $ 365,250
Prepackaged Software - 5.44%
Broderbund Software, Inc.* ............. 16,000 460,000
Maxis, Inc.* ........................... 25,000 356,250
Total 816,250
TOTAL COMMON STOCKS - 29.06% $4,363,638
(Cost: $4,280,003)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 2.43%
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... $370 364,450
Communication - 4.89%
MFS Communications Company, Inc.,
0.00%, 1-15-2006 (C) .................. 575 402,500
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 325 332,313
Total ................................. 734,813
Electronic and Other Electric Equipment - 1.22%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 200 183,376
Paper and Allied Products - 2.66%
Buckeye Cellulose Corporation,
9.25%, 9-15-2008 ...................... 400 400,000
Security and Commodity Brokers - 1.91%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ 266 286,250
TOTAL CORPORATE DEBT SECURITIES - 13.11% $ 1,968,889
(Cost: $1,968,688)
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.875%, 2-28-97 ....................... $ 50 $ 50,297
6.125%, 5-31-97 ....................... 850 852,525
7.25%, 2-15-98 ........................ 60 60,975
7.125%, 2-29-2000 ..................... 60 61,387
5.875%, 6-30-2000 ..................... 400 393,188
7.5%, 2-15-2005 ....................... 60 63,140
9.125%, 5-15-2018 ..................... 1,150 1,410,901
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 19.26% $ 2,892,413
(Cost: $2,965,927)
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 4.75%
PHH Corp.,
5.33%, 10-15-96 ....................... 715 713,518
Chemicals and Allied Products - 3.98%
Air Products and Chemicals, Inc.,
5.3%, 10-29-96 ........................ 600 597,527
Depository Institutions - 3.93%
U.S. Bancorp,
Master Note ........................... 590 590,000
Electric, Gas and Sanitary Services - 4.79%
Pacificorp,
5.3%, 10-11-96 ........................ 720 718,940
Food and Kindred Products - 10.36%
General Mills, Inc.,
Master Note ........................... 260 260,000
Heinz (H. J.) Company,
5.35%, 10-25-96 ....................... 700 697,503
Seagram (Joseph E.) & Sons Inc.,
5.34%, 10-17-96 ....................... 600 598,576
Total ................................. 1,556,079
See Notes to Schedule of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Nondepository Institutions - 3.32%
Island Finance Puerto Rico Inc.,
5.32%, 10-21-96 ....................... $ 500 $ 498,522
Transportation Equipment - 4.60%
Echlin Inc.,
5.47%, 11-13-96 ....................... 695 690,459
Wholesale Trade - Nondurable Goods - 3.05%
Sara Lee Corporation,
Master Note ........................... 457 457,000
TOTAL SHORT-TERM SECURITIES - 38.78% $ 5,822,045
(Cost: $5,822,045)
TOTAL INVESTMENT SECURITIES - 100.21% $15,046,985
(Cost: $15,036,663)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.21%) (31,052)
NET ASSETS - 100.00% $15,015,933
See Notes to Schedules of Investments on page 47.
<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
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- -------------------------------------------
DIVIDENDS PAID $0.22
=====
NET ASSET VALUE ON
9/30/96 $ 9.96
3/31/96 10.00
------
CHANGE PER SHARE $(0.04)
======
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 9-30-96 0.56% 3.54%
Period from 9-21-92*
through 9-30-96 3.88% 3.88%
*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 each 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 each 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 September 30, 1996, Limited-Term Bond Fund had net assets totaling
$19,402,584 invested in a diversified portfolio of:
95.95% Bonds
4.05% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
September 30, 1996, your Fund owned:
$58.05Corporate Bonds
35.30U.S. Government Securities
4.05Cash and Cash Equivalents
2.60Municipal Bond
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 2.65%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... $500 $ 514,965
Communication - 2.71%
GTE Corporation,
8.85%, 3-1-98 ......................... 510 526,570
Depository Institutions - 4.81%
First Chicago Corporation,
7.625%, 1-15-2003 ..................... 600 616,830
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 300 316,962
Total ................................. 933,792
Food and Kindred Products - 1.26%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ 236 243,675
General Merchandise Stores - 6.43%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 200 207,164
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 505 523,821
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 515,915
Total ................................. 1,246,900
Industrial Machinery and Equipment - 2.67%
Tenneco Inc.,
8.0%, 11-15-99 ........................ 500 517,725
Instruments and Related Products - 3.73%
Baxter International Inc.,
8.125%, 11-15-2001 .................... 350 365,267
Polaroid Corporation,
8.0%, 3-15-99 ......................... 350 358,099
Total ................................. 723,366
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 11.00%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ $500 $ 521,750
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 500 508,255
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 48 47,106
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 50,157
7.75%, 1-15-99 ........................ 500 512,415
Norwest Financial, Inc.,
6.2%, 9-15-99 ......................... 500 494,460
Total ................................. 2,134,143
Personal Services - 2.53%
Service Corporation International,
6.375%, 10-1-2000...................... 500 490,170
Petroleum and Coal Products - 3.88%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 520 547,617
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 206,104
Total ................................. 753,721
Railroad Transportation - 2.67%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 500 518,945
Security and Commodity Brokers - 8.35%
Merrill Lynch & Co., Inc.,
6.0%, 1-15-2001........................ 600 579,984
Salomon Inc,
7.75%, 5-15-2000....................... 500 509,385
Smith Barney Holdings Inc.,
6.0%, 3-15-1997........................ 530 530,122
Total ................................. 1,619,491
Textile Mill Products - 2.63%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 500 509,465
Transportation by Air - 2.73%
Federal Express Corporation,
10.0%, 9-1-98 ......................... 500 530,420
TOTAL CORPORATE DEBT SECURITIES - 58.05% $11,263,348
(Cost: $11,352,953)
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 2.60%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.),
7.25%, 11-15-2002 ..................... $500 $ 505,000
(Cost: $500,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.75%, 7-15-2003 ...................... 1 1,365
5.5%, 4-15-2013 ....................... 100 99,437
5.5%, 9-15-2013 ....................... 46 46,032
6.4%, 2-15-2018 ....................... 250 245,467
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 368 355,825
5.0%, 12-25-2001 ...................... 249 247,044
8.0%, 2-1-2008 ........................ 266 271,675
6.0%, 1-1-2009 ........................ 307 291,356
6.0%, 2-1-2009 ........................ 314 297,528
6.5%, 12-1-2010 ....................... 699 677,133
6.0%, 1-1-2011 ........................ 566 536,693
6.5%, 2-1-2011 ........................ 573 555,638
7.0%, 5-1-2011 ........................ 499 493,574
7.0%, 7-1-2011 ........................ 493 487,388
7.0%, 9-25-2020 ....................... 38 37,979
7.0%, 4-1-2026 ........................ 502 484,176
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 238 231,307
7.0%, 7-15-2010 ....................... 462 458,155
United States Treasury:
7.875%, 4-15-98 ....................... 500 513,435
7.25%, 5-15-2004 ...................... 500 518,045
TOTAL UNITED STATES GOVERNMENT SECURITIES - 35.30% $6,849,252
(Cost: $6,985,044)
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
SEPTEMBER 30, 1996
Value
TOTAL SHORT-TERM SECURITIES - 2.15% $ 417,000
(Cost: $417,000)
TOTAL INVESTMENT SECURITIES - 98.10% $19,034,600
(Cost: $19,254,997)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.90% 367,984
NET ASSETS - 100.00% $19,402,584
See Notes to Schedules of Investments on page 47.
<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
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- ----------------------------------------
DIVIDENDS PAID $0.22
=====
NET ASSET VALUE ON
9/30/96 $10.75
3/31/96 10.63
------
CHANGE PER SHARE $ 0.12
======
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 9-30-96 3.77% 6.77%
Period from 9-21-92*
through 9-30-96 6.25% 6.25%
*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 each 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 each 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 September 30, 1996, Municipal Bond Fund had net assets totaling $35,790,171
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
September 30, 1996, your Fund owned:
$18.98Industrial Revenue Bonds
12.15Other Municipal Bonds
11.97Hospital Revenue Bonds
10.85Public Power Revenue Bonds
6.26Electric Utility Revenue Bonds
5.93Housing Revenue Bonds
5.29Transportation Revenue Bonds
5.07Resource Recovery Revenue Bonds
4.67Special Tax Bonds
4.47Airport Revenue Bonds
4.36Cash and Cash Equivalents
4.04Water & Sewer Revenue Bonds
3.49Zero Coupon Bonds
2.47Education Revenue Bonds
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.77%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 274,050
ARKANSAS - 4.06%
City of Blytheville, Arkansas, Solid Waste
Recycling and Sewage Treatment Revenue
Bonds (Nucor Corporation Project), Series 1992,
6.9%, 12-1-2021 ....................... 1,000 1,058,750
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 393,000
Total ................................. 1,451,750
CALIFORNIA - 8.19%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (C) .................... 2,000 1,250,000
Sacramento County Sanitation Districts
Financing Authority, 1993 Revenue Bonds,
5.125%, 12-1-2013 ..................... 1,275 1,188,938
Carson Redevelopment Agency (California),
Redevelopment Project Area No. 2, Refunding
Tax Allocation Bonds, Series 1993,
6.0%, 10-1-2013 ....................... 500 491,875
Total ................................. 2,930,813
DISTRICT OF COLUMBIA - 2.05%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... 750 732,187
FLORIDA - 3.01%
Lake County, Florida, Resource Recovery
Industrial Development Refunding Revenue
Bonds (NRG/Recovery Group Project),
Series 1993A,
5.95%, 10-1-2013 ...................... 965 938,463
Hillsborough County, Florida, Capital
Improvement Non-Ad Valorem Revenue Bonds
(County Center Project), Second
Series 1992,
6.75%, 7-1-2022 ....................... 125 139,062
Total ................................. 1,077,525
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
GUAM - 0.70%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... $ 250 $ 251,875
ILLINOIS - 2.47%
City of Quincy, Adams County, Illinois,
Revenue Bonds, Series 1993
(Blessing Hospital),
6.0%, 11-15-2018 ...................... 500 477,500
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ 400 405,000
Total ................................. 882,500
INDIANA - 5.23%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana-Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 1,500 1,488,750
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 381,500
Total ................................. 1,870,250
IOWA - 0.96%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 342,975
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
LOUISIANA - 0.60%
Parish of St. Charles, State of Louisiana,
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... $ 200 $ 215,000
MARYLAND - 5.83%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 942,500
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A,
6.2%, 7-1-2010 ........................ 665 672,481
Maryland Health and Educational Facilities
Authority, Project and Refunding Revenue
Bonds, Doctors Community Hospital Issue,
Series 1993,
5.75%, 7-1-2013 ....................... 500 472,500
Total ................................. 2,087,481
MICHIGAN - 2.59%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 926,250
MISSOURI - 0.72%
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 256,250
MONTANA - 4.09%
Montana Health Facility Authority, Health Care
Revenue Bonds, Series 1996 (Community Medical
Center, Inc.),
6.375%, 6-1-2018 ...................... 1,500 1,464,375
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEBRASKA - 1.40%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, Series A-SA,
6.2%, 6-1-2013 ........................ $ 500 $ 502,500
NEVADA - 2.67%
West Wendover Recreation District, Elko
County, Nevada, General Obligation
(Limited Tax), Recreational Facilities
and Refunding Bonds, Series 1996,
6.25%, 12-1-2021 ...................... 950 955,938
NEW JERSEY - 4.28%
New Jersey Economic Development Authority,
Economic Development Refunding Bonds (Preston
Trucking Company, Inc. - 1996 Project),
6.5%, 9-1-2014 ........................ 1,500 1,533,750
NEW MEXICO - 4.67%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 1,670,625
NEW YORK - 5.86%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1995:
6.25%, 4-1-2014 ....................... 1,400 1,431,500
5.25%, 4-1-2013 ....................... 500 460,625
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 205,000
Total ................................. 2,097,125
NORTH CAROLINA - 3.06%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 1,000 1,096,250
OHIO - 2.32%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 828,750
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA - 6.45%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-2026 ....................... $1,000 $1,081,250
Tulsa Public Facilities Authority
(Oklahoma), Assembly Center Lease Payment
Revenue Bonds, Refunding Series 1985:
6.2%, 11-1-2012 ....................... 500 505,625
6.6%, 7-1-2014 ........................ 200 219,500
Holdenville Industrial Authority, Correctional
Facility Revenue Bonds, Series 1995,
6.35%, 7-1-2006 ....................... 500 501,875
Total ................................. 2,308,250
TENNESSEE - 2.91%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,042,500
TEXAS - 13.67%
Dallas-Fort Worth International Airport,
Facility Improvement Corporation, American
Airlines, Inc. Revenue Bonds, Series 1990,
7.5%, 11-1-2025 ....................... 1,500 1,599,375
Alliance Airport Authority, Inc.,
Special Facilities Revenue Bonds,
Series 1996 (Federal Express Corporation
Project),
6.375%, 4-1-2021 ...................... 1,500 1,485,000
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 1,058,750
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 750,000
Total ................................. 4,893,125
See Notes to Schedules of Investments on page 47.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
WASHINGTON - 7.08%
Public Utility District No. 1 of Pend Oreille
County, Washington, Electric Revenue Bonds,
1996 Series A (Subject to AMT),
6.375%, 1-1-2015 ...................... $1,500 $ 1,501,875
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds, Series 1996A,
6.0%, 7-1-2008 ........................ 1,000 1,033,750
Total ................................. 2,535,625
TOTAL MUNICIPAL BONDS - 95.64% $34,227,719
(Cost: $33,346,043)
TOTAL SHORT-TERM SECURITIES - 0.10% $ 37,000
(Cost: $37,000)
TOTAL INVESTMENT SECURITIES - 95.74% $34,264,719
(Cost: $33,383,043)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 4.26% 1,525,452
NET ASSETS - 100.00% $35,790,171
See Notes to Schedules of Investments on page 47.
<PAGE>
WADDELL & REED FUNDS, INC.
SEPTEMBER 30, 1996
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Principal amounts are denominated in the indicated foreign currency where
applicable ($A - Australian Dollar, SEK - Swedish Krona, DM - German Mark,
Y - Japanese Yen).
(C) 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
SEPTEMBER 30, 1996 Total International
Return Growth Growth
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $263,963,249$251,594,920 $28,398,391
Cash .............. --- 22,043 4,761
Receivables:
Fund shares sold .. 1,318,300 940,489 132,523
Investment securities
sold ............ --- 882,625 1,457,951
Dividends and interest 303,966 50,513 102,939
Unamortized organization
expenses (Note 2) . 6,518 6,518 6,518
Prepaid insurance premium 1,824 1,848 304
------------------------ -----------
Total assets .... 265,593,857 253,498,956 30,103,387
Liabilities ------------ ----------- -----------
Payable for Fund shares
redeemed .......... 308,001 497,259 35,152
Payable for investment
securities purchased 1,240,946 398,247 827,043
Accrued service fee -
Class B ........... 146,248 141,797 12,266
Accrued transfer agency
and dividend disbursing 33,523 39,949 6,361
Due to custodian ... 77,421 --- ---
Organization expenses
payable ........... 6,518 6,518 6,518
Accrued distribution
fee - Class B ..... 5,402 5,177 598
Dividends payable .. --- --- ---
Accrued accounting
services fee ...... 4,167 4,167 1,667
Other .............. 8,391 9,177 10,584
------------------------ -----------
Total liabilities 1,830,617 1,102,291 900,189
------------------------ -----------
Total net assets $263,763,240$252,396,665 $29,203,198
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 153,830$ 114,691 $ 27,232
Additional paid-in
capital ......... 208,389,492 195,641,507 26,902,323
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... (164,445) (316,927) 32,246
Accumulated undistributed
net realized gain (loss)
on investments .. 1,338,780 6,080,442 (969,102)
Net unrealized appreciation
(depreciation) of investments
at end of period 54,045,583 50,876,952 3,210,499
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $263,763,240$252,396,665 $29,203,198
======================== ===========
Net asset value, redemption
and offering price
per share
Class B Shares ..... $17.15 $22.01 $10.72
Class Y Shares ..... $17.24 $22.09 $10.78
Capital shares outstanding:
Class B Shares 15,378,126 11,469,043 2,720,918
Class Y Shares 4,858 49 2,327
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
SEPTEMBER 30, 1996 Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $15,046,985 $19,034,600 $34,264,719
Cash .............. 12,910 22,273 9,506
Receivables:
Fund shares sold .. 25,242 164,911 13,721
Investment securities
sold ............ --- --- 978,720
Dividends and interest 112,861 322,272 632,042
Unamortized organization
expenses (Note 2) . 557 6,518 6,518
Prepaid insurance premium 296 320 400
------------------------ -----------
Total assets .... 15,198,851 19,550,894 35,905,626
Liabilities ------------ ----------- -----------
Payable for Fund shares
redeemed .......... 69,245 118,303 69,069
Payable for investment
securities purchased 97,852 --- ---
Accrued service fee -
Class B............ 8,967 10,540 20,003
Accrued transfer agency
and dividend disbursing 3,196 3,403 4,365
Due to custodian ... --- --- ---
Organization expenses
payable ........... 557 6,518 6,518
Accrued distribution
fee - Class B ..... 309 398 736
Dividends payable .. --- 5,617 10,766
Accrued accounting
services fee ...... 833 833 1,667
Other .............. 1,959 2,698 2,331
------------------------ -----------
Total liabilities 182,918 148,310 115,455
------------------------ -----------
Total net assets $15,015,933 $19,402,584 $35,790,171
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 14,825 $ 19,478 $ 33,284
Additional paid-in
capital ......... 15,168,377 19,686,099 35,421,787
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income
(loss) .......... 18,998 --- ---
Accumulated undistributed
net realized gain (loss)
on investments .. (196,589) (82,596) (546,576)
Net unrealized appreciation
(depreciation) of investments
at end of period 10,322 (220,397) 881,676
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $15,015,933 $19,402,584 $35,790,171
======================== ===========
Net asset value, redemption
and offering price
per share
Class B Shares ..... $10.13 $9.96 $10.75
Class Y Shares ..... $10.13 $9.96 $10.75
Capital shares outstanding:
Class B Shares 1,482,377 1,947,733 3,328,263
Class Y Shares 100 102 95
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 Six Months Ended SEPTEMBER 30, 1996
Total International
Return Growth Growth
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $ 461,122 $2,109,854 $ 158,092
Dividends ......... 1,730,213 65,929 239,094
----------- ----------- ----------
Total income .... 2,191,335 2,175,783 397,186
----------- ----------- ----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 879,180 871,018 93,015
Investment management fee 830,060 937,810 100,155
Service fee - Class B 290,590 285,149 24,588
Transfer agency and
dividend disbursing -
Class B ......... 204,561 242,924 36,769
Registration fees.. 65,457 67,408 22,640
Accounting services fee 25,000 25,000 7,500
Custodian fees .... 7,665 6,068 20,225
Audit fees ........ 8,540 8,515 4,800
Amortization of organization
expenses ........ 3,259 3,259 3,259
Amortization of prepaid
registration fees --- --- ---
Legal fees ........ 1,694 1,691 497
Shareholder servicing fee -
Class Y ......... 65 1 16
Distribution fees - Class Y 145 2 27
Other ............. 39,564 43,865 6,250
------------------------ -----------
Total expenses .. 2,355,780 2,492,710 319,741
------------------------ -----------
Net investment income
(loss) ........ (164,445) (316,927) 77,445
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities...... 438,199 1,928,100 (578,025)
Realized net gain (loss)
from foreign currency
transactions ...... --- --- (11,542)
------------------------ -----------
Realized net gain
(loss) on investments 438,199 1,928,100 (589,567)
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ 11,783,677 8,451,501 2,429,857
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- (2,858)
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- 30,474
------------------------ -----------
Unrealized appreciation
(depreciation) 11,783,677 8,451,501 2,457,473
------------------------ -----------
Net gain (loss)
on investments . 12,221,876 10,379,601 1,867,906
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $12,057,431 $10,062,674 $1,945,351
======================== ===========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1996
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income:
Interest .......... $315,240 $627,449 $1,055,406
Dividends ......... 19,615 --- ---
----------- ----------- ----------
Total income .... 334,855 627,449 1,055,406
----------- ----------- ----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 53,758 73,486 130,496
Investment management fee 57,803 54,764 97,280
Service fee - Class B 18,151 24,556 40,382
Transfer agency and
dividend disbursing -
Class B ......... 19,788 21,949 28,876
Registration fees.. 16,109 14,856 19,758
Accounting services fee 5,000 5,000 10,000
Custodian fees .... 1,877 1,827 1,641
Audit fees ........ 4,400 4,400 6,000
Amortization of organization
expenses ........ 76 3,259 3,259
Amortization of prepaid
registration fees 3,483 --- ---
Legal fees ........ 817 146 2,156
Shareholder servicing fee -
Class Y ......... 1 1 1
Distribution fees - Class Y 2 2 2
Other ............. 10,651 4,042 5,709
------------------------ -----------
Total expenses .. 191,916 208,288 345,560
------------------------ -----------
Net investment income
(loss) ........ 142,939 419,161 709,846
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments
Realized net gain (loss)
on securities...... (385,968) (98,433) 10,566
Realized net gain (loss)
from foreign currency
transactions ...... 612 --- ---
------------------------ -----------
Realized net gain
(loss) on investments (385,356) (98,433) 10,566
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ 333,473 (14,020) 392,034
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- ---
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- ---
------------------------ -----------
Unrealized appreciation
(depreciation) 333,473 (14,020) 392,034
------------------------ -----------
Net gain (loss)
on investments . (51,883) (112,453) 402,600
------------------------ -----------
Net increase in net assets
resulting from
operations ..... $91,056 $306,708 $1,112,446
======================== ===========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1996
Total International
Return Growth Growth
Fund Fund Fund
Increase (Decrease)
in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ (164,445) $ (316,927) $ 77,445
Realized net gain (loss)
on investments ... 438,199 1,928,100 (589,567)
Unrealized
appreciation
(depreciation) .. 11,783,677 8,451,501 2,457,473
--------------------------------------
Net increase in net assets
resulting from
operations...... 12,057,431 10,062,674 1,945,351
------------------------ -----------
Dividends to shareholders:*
From net investment income
Class B ......... --- --- ---
Class Y ......... --- --- ---
From realized net gain on
investment transactions
Class B ......... --- --- ---
Class Y ......... --- --- ---
------------------------ -----------
--- --- ---
------------------------ -----------
Capital share
transactions
(Note 6)........... 43,385,953 39,776,106 6,376,841
------------------------ -----------
Total increase
(decrease) ... 55,443,384 49,838,780 8,322,192
Net Assets
Beginning of period 208,319,856 202,557,885 20,881,006
------------------------ -----------
End of period ...... $263,763,240$252,396,665 $29,203,198
======================== ===========
Undistributed net
investment income
(loss) .......... $(164,445) $(316,927) $32,246
========= ========= =======
*See "Financial Highlights" on pages 56 - 67.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended SEPTEMBER 30, 1996
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Increase (Decrease)
in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ 142,939 $ 419,161 $ 709,846
Realized net gain (loss)
on investments ... (385,356) (98,433) 10,566
Unrealized
appreciation
(depreciation) .. 333,473 (14,020) 392,034
--------------------------------------
Net increase in net assets
resulting from
operations...... 91,056 306,708 1,112,446
------------------------ -----------
Dividends to shareholders:*
From net investment income
Class B ......... (129,422) (419,136) (709,823)
Class Y ......... (13) (25) (23)
From realized net gain on
investment transactions
Class B ......... --- --- ---
Class Y ......... --- --- ---
------------------------ -----------
(129,435) (419,161) (709,846)
------------------------ -----------
Capital share
transactions
(Note 6)........... 1,831,855 (4,167,493) 1,517,720
------------------------ -----------
Total increase
(decrease) ... 1,793,476 (4,279,946) 1,920,320
Net Assets
Beginning of period 13,222,457 23,682,530 33,869,851
------------------------ -----------
End of period ...... $15,015,933 $19,402,584 $35,790,171
======================== ===========
Undistributed net
investment income
(loss) .......... $18,998 $--- $---
======= ==== ====
*See "Financial Highlights" on pages 56 - 67.
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
(loss) .......... $--- $--- $(33,657)
==== ==== =======
*See "Financial Highlights" on pages 56 - 67.
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
(loss) .......... $4,882 $--- $---
====== ==== ====
*See "Financial Highlights" on pages 56 - 67.
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
six For the fiscal period
months year ended March 31, ended
ended---------------------- March 31,
9/30/96 1996 1995 1994 1993*
-------- ------ ------ ------ ------
Net asset value,
beginning of
period ........... $16.34 $12.73 $11.99 $11.07 $10.00
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income
(loss)........... (0.01) (0.01) 0.00 (0.01) 0.02
Net realized and
unrealized gain
on investments .. 0.82 3.67 0.74 0.93 1.07
------ ------ ------ ------ ------
Total from investment
operations ....... 0.81 3.66 0.74 0.92 1.09
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
Distribution from
capital gains ... (0.00) (0.05) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions. (0.00) (0.05) (0.00) (0.00) (0.02)
------ ------ ------ ------ ------
Net asset value,
end of period .... $17.15 $16.34 $12.73 $11.99 $11.07
====== ====== ====== ====== ======
Total return ....... 4.96% 28.75% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) ..........$263,679$208,233$104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 2.01%** 1.99% 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.14%**-0.11% -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 9.09% 16.78% 16.60% 17.31% 23.97%
Average commission
rate paid ......... $0.0582
*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.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $16.38 $15.32
------ ------
Income from investment
operations:
Net investment
income........... 0.05 0.03
Net realized and
unrealized gain
on investments .. 0.81 1.03
------ ------
Total from investment
operations ....... 0.86 1.06
------ ------
Less dividends from net
investment income (0.00) (0.00)
------ ------
Net asset value,
end of period .... $17.24 $16.38
====== ======
Total return ....... 5.25% 6.92%
Net assets, end of
period (000
omitted) .......... $84 $87
Ratio of expenses
to average net
assets ........... 1.35%** 0.96%**
Ratio of net investment
income to average
net assets ....... 0.52%** 1.04%**
Portfolio turnover
rate ............. 9.09% 16.78%**
Average commission
rate paid ......... $0.0582
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
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
six For the fiscal period
months year ended March 31, ended
ended---------------------- March 31,
9/30/96 1996 1995 1994 1993*
-------- ------ ------ ------ ------
Net asset value,
beginning of
period ........... $21.00 $16.90 $14.08 $11.68 $10.00
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.02) (0.02) 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. 1.03 4.49 3.15 2.75 1.79
------ ------ ------ ------ ------
Total from investment
operations ....... 1.01 4.47 3.15 2.71 1.77
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.00) (0.00) (0.00) (0.00) (0.01)
Distribution from
capital gains ... (0.00) (0.37) (0.33) (0.31) (0.08)
------ ------ ------ ------ ------
Total distributions (0.00) (0.37) (0.33) (0.31) (0.09)
------ ------ ------ ------ ------
Net asset value,
end of period .... $22.01 $21.00 $16.90 $14.08 $11.68
====== ====== ====== ====== ======
Total return ....... 4.81% 26.57% 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) .........$252,396 $202,557$100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.16%** 2.14% 2.23% 2.34% 2.50%
Ratio of net investment
income to average
net assets ....... -0.27%**-0.25% 0.01% -0.97% -0.68%
Portfolio turnover
rate .............. 17.81% 31.84% 56.30% 69.12% 124.44%
Average commission
rate paid ......... $0.0529
*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.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $21.04 $20.21
------ ------
Income from investment
operations:
Net investment
income........... 0.00 .04
Net realized and
unrealized gain
on investments .. 1.05 .79
------ ------
Total from investment
operations ....... 1.05 .83
------ ------
Less dividends from net
investment income (0.00) (0.00)
------ ------
Net asset value,
end of period .... $22.09 $21.04
====== ======
Total return ....... 4.99% 4.11%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.66%** 1.17%**
Ratio of net investment
income to average
net assets ....... 0.00%** 0.78%**
Portfolio turnover
rate ............. 17.81% 31.84%**
Average commission
rate paid ......... $0.0529
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
***Annualized.
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
six For the fiscal period
months year ended March 31, ended
ended---------------------- March 31,
9/30/96 1996 1995 1994 1993**
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.94 $9.36 $9.37 $9.68 $10.00
------ ------ ----- ----- ------
Income from investment
operations:
Net investment
income .......... 0.04 0.08 0.36 0.34 0.20
Net realized and
unrealized gain (loss)
on investments .. 0.74 0.63 (0.01) (0.31) (0.32)
------ ------ ----- ----- ------
Total from investment
operations ....... 0.78 0.71 0.35 0.03 (0.12)
------ ------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.00) (0.11) (0.36) (0.26) (0.20)
In excess of net
investment income (0.00) (0.02) (0.00) (0.00) (0.00)
Tax-basis return of
capital.......... (0.00) (0.00) (0.00) (0.08) (0.00)
------ ------ ----- ----- ------
Total distributions. (0.00) (0.13) (0.36) (0.34) (0.20)
------ ------ ----- ----- ------
Net asset value,
end of period .... $10.72 $9.94 $9.36 $9.37 $ 9.68
====== ====== ===== ===== ======
Total return ....... 7.85% 7.64% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) .........$29,178 $20,874$11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.58%***2.50% 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... 0.62%***0.63% 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 34.11% 88.55% 13.33% 34.90% 8.35%
Average commission
rate paid ......... $0.0351
*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.
***Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $9.95 $9.70
------ ------
Income from investment
operations:
Net investment
income........... 0.03 0.02
Net realized and
unrealized gain
on investments .. 0.80 0.23
------ ------
Total from investment
operations ....... 0.83 0.25
------ ------
Less dividends from net
investment income (0.00) (0.00)
------ ------
Net asset value,
end of period .... $10.78 $9.95
====== ======
Total return ....... 8.34% 2.58%
Net assets, end of
period (000
omitted) .......... $25 $7
Ratio of expenses
to average net
assets ........... 1.79%** 1.84%**
Ratio of net investment
income to average
net assets ....... 1.07%** 1.07%**
Portfolio turnover
rate ............. 34.11% 88.55%**
Average commission
rate paid ......... $0.0351
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
period
from
For the April 20,
six 1995
months through
ended March
9/30/96 31, 1996*
--------- ---------
Net asset value,
beginning of period $10.15 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... 0.10 0.16
Net realized and
unrealized gain (loss)
on investments... (0.03) 0.14
------ ------
Total from investment
operations ........ 0.07 0.30
Less dividends from
net investment
income ............ (0.09) (0.15)
------ ------
Net asset value,
end of period ..... $10.13 $10.15
====== ======
Total return ....... 0.69% 3.00%
Net assets, end of
period (000
omitted) .........$15,015 $13,221
Ratio of expenses
to average net
assets ............ 2.68%** 2.54%
Ratio of net investment
income to average net
assets ............ 1.99%** 2.14%
Portfolio
turnover rate ..... 39.86% 75.02%
Average commission
rate paid ......... $0.0538
*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.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $10.16 $10.23
------ ------
Income from investment
operations:
Net investment
income........... 0.15 0.07
Net realized and
unrealized loss
on investments .. (0.04) (0.08)
------ ------
Total from investment
operations ....... 0.11 (0.01)
------ ------
Less dividends from net
investment income (0.14) (0.06)
------ ------
Net asset value,
end of period .... $10.13 $10.16
====== ======
Total return ....... 1.17% -0.25%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.78%** 1.95%**
Ratio of net investment
income to average
net assets ....... 2.77%** 2.34%**
Portfolio turnover
rate ............. 39.86% 75.02%**
Average commission
rate paid ......... $0.0538
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
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
six For the fiscal period
months year ended March 31, ended
ended---------------------- March 31,
9/30/96 1996 1995 1994 1993*
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.00 $ 9.70 $9.84 $10.06 $10.00
------ ------ ----- ------ ------
Income from investment
operations:
Net investment
income .......... 0.22 0.41 0.39 0.35 0.18
Net realized and
unrealized gain
(loss) on
investments ..... (0.04) 0.30 (0.13) (0.20) 0.06
------ ------ ----- ------ ------
Total from investment
operations ....... 0.18 0.71 0.26 0.15 0.24
------ ------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.22) (0.41) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.00) (0.00) (0.01) (0.02) (0.00)
------ ------ ----- ------ ------
Total distributions (0.22) (0.41) (0.40) (0.37) (0.18)
------ ------ ----- ------ ------
Net asset value,
end of period .... $ 9.96 $10.00 $9.70 $ 9.84 $10.06
====== ====== ===== ====== ======
Total return ....... 1.76% 7.41% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) .........$19,402 $23,682$12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.13%** 2.10% 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ........ 4.28%** 4.14% 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 18.56% 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.
**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 Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $10.00 $10.16
------ ------
Income from investment
operations:
Net investment
income........... 0.26 0.11
Net realized and
unrealized loss
on investments .. (0.04) (0.16)
------ ------
Total from investment
operations ....... 0.22 (0.05)
------ ------
Less dividends from net
investment income (0.26) (0.11)
------ ------
Net asset value,
end of period .... $ 9.96 $10.00
====== ======
Total return ....... 2.18% -0.49%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.40%** 1.18%**
Ratio of net investment
income to average
net assets ....... 5.00%** 4.70%**
Portfolio turnover
rate ............. 18.56% 22.08%**
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
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
six For the fiscal period
months year ended March 31, ended
ended---------------------- March 31,
9/30/96 1996 1995 1994 1993*
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.63 $10.30 $10.12 $10.53 $10.00
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.22 0.43 0.44 0.39 0.21
Net realized and
unrealized gain
(loss) on
investments ..... 0.12 0.33 0.18 (0.28) 0.53
------ ------ ------ ------ ------
Total from investment
operations ....... 0.34 0.76 0.62 0.11 0.74
------ ------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.22) (0.43) (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.00) (0.00) (0.13) (0.00)
------ ------ ------ ------ ------
Total distributions (0.22) (0.43) (0.44) (0.52) (0.21)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.75 $10.63 $10.30 $10.12 $10.53
====== ====== ====== ====== ======
Total return ....... 3.22% 7.48% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) .........$35,789 $33,869$27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.99%* 1.93% 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.08%* 4.05% 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 21.63% 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.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
six For the
months period from
ended December 29, 1995
9/30/96 to March 31, 1996*
-------- --------------------
Net asset value,
beginning of
period ........... $10.63 $10.94
------ ------
Income from investment
operations:
Net investment
income........... 0.26 0.12
Net realized and
unrealized gain
(loss) on
investments ..... 0.12 (0.31)
------ ------
Total from investment
operations ....... 0.38 (0.19)
------ ------
Less dividends from net
investment income (0.26) (0.12)
------ ------
Net asset value,
end of period .... $10.75 $10.63
====== ======
Total return ....... 3.57% -1.80%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.21%** 1.18%**
Ratio of net investment
income to average
net assets ....... 4.63%** 4.33%**
Portfolio turnover
rate ............. 21.63% 42.02%**
*On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 series of capital shares; each series
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 a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using Nasdaq (National Association of Securities Dealers Automated
Quotations System) 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.
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 series 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 established 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. These expenses were amortized
evenly over Asset Strategy Fund's first 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 $1.3125 for each
shareholder account which was in existence at any time during the prior month
($1.0208 per account prior to April 1, 1996), 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
September 30, 1996, the Distributor received $2,784,369 in 12b-1 payments.
During this same period W&R paid sales commissions of $2,189,084.
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 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 September 30, 1996, the Distributor received $180 in 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 September 30, 1996, the Distributor received $229,272 in deferred sales
charges.
The Corporation paid Directors' fees of $9,058.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended September 30, 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 $ 59,468,285$ 40,445,878$19,154,666
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 101,319,835451,636,33919,597,728
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 19,680,10427,427,927 6,083,860
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,000,000
Proceeds from maturities
and sales of short-term
securities 96,126,279427,483,16625,951,738
Asset Limited- Municipal
Strategy Term Bond
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $5,303,448$1,504,064$10,956,952
Purchases of U.S. Government
securities --- 2,015,559 ---
Purchases of short-term
securities 23,166,768 6,180,000 6,946,501
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 3,543,735 5,089,344 7,268,679
Proceeds from maturities
and sales of U.S.
Government securities --- 1,788,039 ---
Proceeds from maturities
and sales of short-term
securities 22,836,000 6,938,065 9,256,050
For Federal income tax purposes, cost of investments owned at September 30,
1996 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $209,922,144 $56,252,056 $2,210,951 $54,041,105
Growth Fund 200,717,968 60,159,265 9,282,313 50,876,952
International Growth
Fund 25,185,267 3,750,012 570,330 3,179,682
Asset Strategy Fund 15,036,663 273,131 262,809 10,322
Limited-Term Bond Fund19,254,997 72,473 292,870 (220,397)
Municipal Bond Fund 33,478,868 987,776 201,925 785,851
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 incurred
post-October losses of $191,588, which have been deferred to the fiscal year
ending March 31, 1997.
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.
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 period ended September 30, 1996 are
summarized below.
Total International
Return Growth Growth
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 3,281,809 2,273,946 719,274
Class Y ............ 465 --- 1,623
Shares issued from
reinvestment of
dividends:
Class B ............ --- --- ---
Class Y ............ --- --- ---
Shares redeemed:
Class B ............ (646,340) (450,909) (98,944)
Class Y ............ (895) --- (19)
--------- --------- -------
Increase (decrease) in
outstanding capital shares:
Class B ............ 2,635,469 1,823,037 620,330
Class Y ............ (430) --- 1,604
--------- --------- -------
Total for Fund .... 2,635,039 1,823,037 621,934
========= ========= =======
Value issued from sale
of shares:
Class B ............ $54,005,185 $49,496,241 $7,375,585
Class Y ............ 7,682 --- 16,546
Value issued from
reinvestment of
dividends:
Class B ............ --- --- ---
Class Y ............ --- --- ---
Value redeemed:
Class B ............ (10,611,781) (9,720,135) (1,015,094)
Class Y ............ (15,133) --- (196)
----------- ----------- ----------
Increase (decrease) in
outstanding capital:
Class B ............ 43,393,404 39,776,106 6,360,491
Class Y ............ (7,451) --- 16,350
----------- ----------- ----------
Total for Fund .. $43,385,953 $39,776,106 $6,376,841
=========== =========== ==========
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 426,976 283,551 341,866
Class Y ............ --- --- ---
Shares issued from
reinvestment of
dividends:
Class B ............ 12,715 41,272 59,496
Class Y ............ 2 2 3
Shares redeemed:
Class B ............ (259,585) (745,529) (258,482)
Class Y ............ --- --- ---
--------- --------- -------
Increase (decrease) in
outstanding capital shares:
Class B ............ 180,106 (420,706) 142,880
Class Y ............ 2 2 3
--------- --------- -------
Total for Fund .... 180,108 (420,704) 142,883
========= ========= =======
Value issued from sale
of shares:
Class B ............ $4,349,014 $2,815,706 $3,616,633
Class Y ............ --- --- ---
Value issued from
reinvestment of
dividends:
Class B ............ 129,166 410,013 633,763
Class Y ............ 13 25 23
Value redeemed:
Class B ............ (2,646,338) (7,393,237) (2,732,699)
Class Y ............ --- --- ---
----------- ----------- ----------
Increase (decrease) in
outstanding capital:
Class B ............ 1,831,842 (4,167,518) 1,517,697
Class Y ............ 13 25 23
----------- ----------- ----------
Total for Fund .. $1,831,855 $(4,167,493) $1,517,720
=========== =========== ==========
Transactions in capital stock for the period 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. (hereafter referred to as the
"Corporation") at September 30, 1996, the results of its operations for the six
months then ended and 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 September 30, 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
November 8, 1996
<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, Coronado, California
Doyle Patterson, Kansas City, Missouri
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., 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
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
WRR3000SA(9-96)
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