File No. 33-45961
File No. 811-6569
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 8
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 8
WADDELL & REED FUNDS, INC.
- ---------------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
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(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
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Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
__X__ on July 31, 1997 pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ended March 31, 1997 will be filed on or about May 24,
1997.
<PAGE>
WADDELL & REED FUNDS, INC.
==========================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d) ..................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
(b) ..................... About the Investment Principles of the Funds
(c) ..................... An Overview of the Funds; About the Investment
Principles of the Funds
5(a) ..................... About the Management and Expenses of the Funds
(b) ..................... About the Management and Expenses of the Funds
(c) ..................... About the Management and Expenses of the Funds
(d) ..................... About the Management and Expenses of the Funds
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(f) ..................... Expenses; About the Management and Expenses of the
Funds
(g) ..................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Funds
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Funds
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Funds
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Funds
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Funds
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
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*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 31, 1997. The SAI is available free upon request to the Corporation
or Waddell & Reed, Inc., its principal underwriter and distributor, at the
address or telephone number below. The SAI is incorporated by reference into
this Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
HIGH INCOME FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY
DOMESTIC OR FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS
"JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE
FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE
RISKS BEFORE INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS"
INCLUDED IN THIS PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-
INVESTMENT GRADE DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND
RATINGS.
Waddell & Reed Funds, Inc.
Class B Shares
Waddell & Reed Funds, Inc. (the "Corporation") is a management investment
company that has eight separate funds (the "Funds"), each of which is designed
for investors with different goals. Total Return Fund seeks to provide current
income while seeking capital growth. Growth Fund seeks capital appreciation.
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital. Municipal Bond Fund seeks to provide
income which is not subject to Federal income taxation. International Growth
Fund seeks long-term appreciation as its primary goal and realization of income
as its secondary goal. Asset Strategy Fund seeks high total return over the
long term. Science and Technology Fund seeks long-term capital growth through
investments primarily in science and technology securities. High Income Fund
seeks high current income as a primary goal and capital growth as a secondary
goal.
This Prospectus describes one class of shares of each of the Funds--Class B
shares.
Prospectus
July 31, 1997
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS............... ....................... 7
EXPENSES.......................................................10
FINANCIAL HIGHLIGHTS...........................................26
For the fiscal period .....................................26
PERFORMANCE....................................................38
Explanation of Terms .........................................38
ABOUT WADDELL & REED...........................................40
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...................41
Investment Goals and Principles ..............................41
Total Return Fund ..........................................41
Growth Fund ................................................42
Limited-Term Bond Fund .....................................42
Municipal Bond Fund ........................................43
International Growth Fund ..................................45
Asset Strategy Fund ........................................46
Science and Technology Fund ................................48
High Income Fund ...........................................48
Risk Considerations ........................................49
Securities and Investment Practices ........................50
ABOUT YOUR ACCOUNT.............................................74
Ways to Set Up Your Account ..................................74
Buying Shares ................................................75
Minimum Investments ..........................................77
Adding to Your Account .......................................77
Selling Shares ...............................................78
Shareholder Services .........................................82
Personal Service ...........................................82
Reports ....................................................83
Exchanges ..................................................83
Automatic Transactions .....................................83
Distributions and Taxes ......................................84
Distributions ..............................................84
Taxes ......................................................85
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS.................88
WRIMCO and Its Affiliates ....................................89
Breakdown of Expenses ........................................92
Management Fee . . ...........................................92
Other Expenses .............................................94
Distribution ...............................................95
APPENDIX A.....................................................98
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes eight separate series (each a "Fund"
and collectively the "Funds") of an open-end, management investment company.
Each Fund has different investment goals and policies. Each of the Funds is a
diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital
growth. This Fund invests primarily in common stocks, or securities convertible
into common stocks, of companies that have a record of paying regular dividends
on common stock or have the potential for capital appreciation. Although common
stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of its assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return over the long term. This Fund
seeks to achieve its goal by allocating its assets among stocks, bonds and
short-term instruments, both in the United States and abroad. The Fund
designates a mix which represents the way the Fund's investments will generally
be allocated over the long term. This mix will vary over short-term periods as
the Fund's investment manager adjusts the Fund's holdings -- within defined
ranges -- based on the current outlook for the different markets. Because the
Fund owns different types of investments, its performance will be affected by a
variety of factors.
Science and Technology Fund seeks long-term capital growth through investment in
a portfolio emphasizing science and technology securities. This Fund invests in
common stock, preferred stock, debt securities and convertible securities.
High Income Fund seeks, as a primary goal, a high level of current income. As a
secondary goal, the Fund seeks capital growth when consistent with its primary
goal. The Fund invests primarily in a diversified portfolio of high-yield,
high-risk, fixed-income securities, the risks of which are, in the judgment of
the Fund's investment manager, consistent with the Fund's goals. Investments in
high-yield, high-risk securities ("junk bonds") may entail risks that are
different or more pronounced than those involved in higher-rated securities.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the
eight Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class B shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class B share of
a Fund is the net asset value of a Class B share of that Fund. A sales charge
is not incurred upon purchase of shares of a Fund, but the Class B shares are
subject to a contingent deferred sales charge if redeemed within a certain time
period. See "About Your Account" for information on how to purchase Class B
shares of each of the Funds.
Redemptions: You may redeem your Class B shares at net asset value less a
deferred sales charge, if any. The deferred sales charge will vary with the
length of time you have held your shares. When you sell your Class B shares,
they may be worth more or less than what you paid for them. See "About Your
Account" for a description of redemption and reinvestment procedures.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Funds" for information
about the risks associated with each Fund's investments.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge1 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees2 0.99%
Other expenses 0.26%
Total Fund operating
expenses3 1.96%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return:4
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 50 $ 20
3 years $ 72 $ 62
5 years $106 $106
10 years $229 $229
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
1The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
2It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
3Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
4Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge5 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees6 0.81%
12b-1 fees7 0.99%
Other expenses 0.32%
Total Fund operating
expenses8 2.12%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return9 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 52 $ 22
3 years $ 76 $ 66
5 years $114 $114
10 years $246 $246
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
5The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
6The management fee for Growth Fund is higher than that of most funds.
7It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
8Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
9Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Limited-Term Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge10 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees11 1.00%
Other expenses0.52%
Total Fund operating
expenses12 2.08%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return13 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 51 $ 21
3 years $ 75 $ 65
5 years $112 $112
10 years $241 $241
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
10The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
11It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
12Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
13Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge14 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees15 0.98%
Other expenses 0.38%
Total Fund operating
expenses 1.92%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return16 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 49 $ 19
3 years $ 70 $ 60
5 years $104 $104
10 years $224 $224
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
14The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
15It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
16Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge17 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees18 0.81%
12b-1 fees19 0.96%
Other expenses 0.69%
Total Fund operating
expenses20 2.46%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return21 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 55 $ 25
3 years $ 87 $ 77
5 years $131 $131
10 years $280 $280
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
17The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
18 The management fee for International Growth Fund is higher than that of
most funds.
19It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
20 Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
21Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge22 3%
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees230.81%
12b-1 fees24 1.00%
Other expenses 0.72%
Total Fund operating
expenses25 2.53%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return26 and (2) redemption at the end of each time period:
Assuming Assuming
Redemption No Redemption
at End of at End of
Each Period Each Period
----------- -------------
1 year $ 56 $ 26
3 years $ 89 $ 79
5 years $135 $135
10 years $287 $287
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
22The contingent deferred sales charge, which is imposed on redemption proceeds,
declines 1% annually from 3% of the amount invested during the first calendar
year to 0% after 4 years. See "About Your Account" for further information
about the contingent deferred sales charge.
23The management fee for Asset Strategy Fund is higher than that of most funds.
24Expense information reflects the maximum 12b-1 fee. It is possible that long-
term shareholders of the Fund may bear 12b-1 distribution fees which are more
than the maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. See "Breakdown of Expenses."
25Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
26Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Science and Technology Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge27 3%
Redemption fees
(other than contingent
deferred sales
charge) None
Exchange Fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees28 1.00%
Other expenses29 %
(includes, among other
expenses, transfer agency,
accounting, custodian,
audit and legal fees)
Total Fund
operating expenses30 %
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return31 and (2) redemption at the end of each time period:
1 year $
3 years $
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return32 and (2) no redemption at the end of each time period:
1 year $
3 years $
27The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the first
calendar year to 0% after 4 years. See "About Your Account" for further
information about the contingent deferred sales charge.
28Expense information reflects the maximum 12b-1 fee. It is possible that long-
term shareholders of the Fund may bear 12b-1 distribution fees which are more
than the maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. See "Breakdown of Expenses."
29Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
30Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
31Use of assumed annual return of 5% is for illustration purposes only and not a
representation of a Fund's future performance, which may be greater or lesser.
32Use of assumed annual return of 5% is for illustration purposes only and not a
representation of a Fund's future performance, which may be greater or lesser.
<PAGE>
Science and Technology Fund had not commenced operations prior to March 31,
1997. The expenses are pro forma and estimated for the first fiscal year of
operations. The purpose of the table is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
<PAGE>
High Income Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge33 3%
Redemption fees
(other than contingent
deferred sales
charge) None
Exchange Fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.66%
12b-1 fees34 1.00%
Other expenses35 %
(includes, among other
expenses, transfer agency,
accounting, custodian,
audit and legal fees)
Total Fund
operating expenses36 %
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return37 and (2) redemption at the end of each time period:
1 year $
3 years $
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return38 and (2) no redemption at the end of each time period:
33 The contingent deferred sales charge, which is imposed on redemption
proceeds, declines 1% annually from 3% of the amount invested during the first
calendar year to 0% after 4 years. See "About Your Account" for further
information about the contingent deferred sales charge.
34 Expense information reflects the maximum 12b-1 fee. It is possible that
long-term shareholders of the Fund may bear 12b-1 distribution fees which are
more than the maximum front-end sales charge permitted under the rules of the
National Association of Securities Dealers, Inc. See "Breakdown of Expenses."
35 Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
36 Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
37 Use of assumed annual return of 5% is for illustration purposes only and not
a representation of a Fund's future performance, which may be greater or lesser.
38Use of assumed annual return of 5% is for illustration purposes only and not a
representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
1 year $
3 years $
High Income Fund had not commenced operations prior to March 31, 1997. The
Expenses are pro forma and estimated for the first fiscal year of operations.
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
<PAGE>
Financial Highlights
Total Return Fund
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
---------------------------- March 31,
1997 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)........... (0.02) (0.01) 0.00 (0.01) .02
Net realized and
unrealized gain
on investments .. 1.97 3.67 .74 .93 1.07
------ ------ ------ ------ ------
Total from investment
operations ....... 1.95 3.66 .74 .92 1.09
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00) (0.00) (0.00) (0.02)
Distribution from
capital gains ... (0.11) (0.05) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions. (0.11) (0.05) (0.00) (0.00) (0.02)
------ ------ ------ ------ ------
Net asset value,
end of period .... $18.18 $16.34 $12.73 $11.99 $11.07
====== ====== ====== ====== ======
Total return ....... 11.93% 28.75% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) ..........$317,453$208,233$104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 1.95% 1.99% 2.05% 2.16% 2.21%***
Ratio of net investment
income to average
net assets ....... -0.17% -0.11% -0.04% -0.12% 0.32%***
Portfolio turnover
rate ............. 26.23% 16.78% 16.60% 17.31% 23.97%***
Average commission
rate paid ........ $0.0578
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Growth Fund
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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) ... (0.06) (0.02) 0.00 (0.04) (0.02)
Net realized and
unrealized gain
on investments .. (2.18) 4.49 3.15 2.75 1.79
------ ------ ------ ------ ------
Total from investment
operations ....... (2.24) 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 ... (0.60) (0.37) (0.33) (0.31) (0.08)
------ ------ ------ ------ ------
Total distributions (0.60) (0.37) (0.33) (0.31) (0.09)
------ ------ ------ ------ ------
Net asset value,
end of period .... $18.16 $21.00 $16.90 $14.08 $11.68
====== ====== ====== ====== ======
Total return ....... -10.97% 26.57% 22.61% 23.16% 17.71%
Net assets, end of
period (000
omitted) .........$198,088$202,557$100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.12% 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 .............. 37.20% 31.84% 56.30% 69.12% 124.44%***
Average commission
rate paid ........ $0.0516
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Limited-Term Bond Fund
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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 .......... 0.44 .41 0.39 .35 .18
Net realized and
unrealized gain
(loss) on
investments ..... (0.09) .30 (0.13) (0.20) .06
------ ------ ----- ------ ------
Total from investment
operations ....... 0.35 .71 .26 .15 .24
------ ------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.44) (0.41) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.01) (0.00) (0.01) (0.02) (0.00)
------ ------ ----- ------ ------
Total distributions (0.45) (0.41) (0.40) (0.37) (0.18)
------ ------ ----- ------ ------
Net asset value,
end of period .... $9.90 $10.00 $9.70 $ 9.84 $10.06
====== ====== ===== ====== ======
Total return ....... 3.52% 7.41% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) .........$17,770 $23,682$12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.07% 2.10% 2.17% 2.14% 2.15%***
Ratio of net investment
income to average
net assets ........ 4.40% 4.14% 4.05% 3.41% 3.48%***
Portfolio turnover
rate 23.05% 22.08% 29.20% 25.90% 39.64%
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
Municipal Bond Fund
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class B share outstanding throughout each period*:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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 .......... 0.45 0.43 0.44 0.39 0.21
Net realized and
unrealized gain
(loss) on
investments ..... 0.11 0.33 0.18 (0.28) 0.53
------ ------ ------ ------ ------
Total from investment
operations ....... 0.56 0.76 0.62 0.11 0.74
------ ------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.45) (0.43) (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.00) (0.00) (0.13) (0.00)
------ ------ ------ ------ ------
Total distributions (0.45) (0.43) (0.44) (0.52) (0.21)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.74 $10.63 $10.30 $10.12 $10.53
====== ====== ====== ====== ======
Total return ....... 5.32% 7.48% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) .........$36,618 $33,869$27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.92% 1.93% 1.94% 1.98% 1.94%***
Ratio of net investment
income to average
net assets ....... 4.18% 4.05% 4.41% 3.62% 3.99%***
Portfolio turnover
rate ............. 34.72% 42.02% 56.92% 18.93% 140.02%***
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993.
***Annualized.
<PAGE>
International Growth Fund*
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class B share outstanding throughout each period**:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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 (loss).... (0.03) 0.08 0.36 0.34 0.20
Net realized and
unrealized gain (loss)
on investments .. 2.50 0.63 (0.01) (0.31) (0.32)
------ ------ ----- ----- ------
Total from investment
operations ....... 2.47 .71 .35 .03 (0.12)
------ ------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.01) (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. (0.01) (0.13) (0.36) (0.34) (0.20)
------ ------ ----- ----- ------
Net asset value,
end of period .... $12.40 $9.94 $9.36 $9.37 $ 9.68
====== ====== ===== ===== ======
Total return ....... 24.85% 7.64% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) .........$50,472 $20,874$11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.46% 2.50% 2.29% 2.24% 2.06%****
Ratio of net investment
income (loss) to average
net assets ....... -0.52% 0.63% 3.87% 3.56% 3.88%****
Portfolio turnover
rate ............. 94.76% 88.55% 13.33% 34.90% 8.35%****
Average commission
rate paid ........ $0.0124
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**On December 2, 1995, the Fund began offering Class Y shares to the public.
Fund shares outstanding prior to that date were designated Class B shares.
***The Corporation's inception date is January 29, 1992; however, since the
Fund did not have any investment activity or incur expenses prior to the
date of initial public offering, the per share information is for a capital
share outstanding for the period from September 21, 1992 (initial public
offering) through March 31, 1993.
****Annualized.
<PAGE>
Asset Strategy Fund
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Statements.
For a Class B share outstanding throughout the period*:
For the
period
from
April 20,
For the fiscal 1995
year ended March 31, through
------------------- March
1997 31, 1996**
---- ---------
Net asset value,
beginning of period $10.15 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... 0.23 .16
Net realized and
unrealized gain (loss)
on investments... (0.30) .14
------ ------
Total from investment
operations ........ (0.07) .30
------ ------
Less distributions:
Dividends from
net investment
income........... (0.21) (0.15)
Distributions from
capital gains ... (0.14) (0.00)
------ ------
Net asset value,
end of period ..... $9.73 $10.15
====== ======
Total return ....... -0.86% 3.00%
Net assets, end of
period (000
omitted) ......... $13,398 $13,221
Ratio of expenses
to average net
assets ............ 2.52% 2.54%
Ratio of net investment
income to average net
assets ............ 2.21% 2.14%
Portfolio
turnover rate ..... 109.92% 75.02%
Average commission
rate paid ........ $0.0375
*On December 2, 1995, Fund shares outstanding were designated Class B shares.
**The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per share information is for a capital share
outstanding for the period from April 20, 1995 (initial public
offering) through March 31, 1996. Ratios have been annualized.
Science and Technology Fund and High Income Fund did not commence operations
prior to March 31, 1997.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and other
distributions. A cumulative total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same as
actual year-by-year results.
Standardized total return figures reflect payment of the maximum applicable
contingent deferred sales charge. Non-standardized performance information does
not reflect deduction of the sales charge or is for periods other than those
required to be presented or differs otherwise from standardized performance
information.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period. Tax
equivalent yield is calculated by applying the stated income tax rate to only
the net investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Funds may quote their performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Funds may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that a Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of any Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in the Fund's annual and semiannual reports, which are sent to all shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of
their financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives located
throughout the United States. Your primary contact in your dealings with
Waddell & Reed will be your local account representative. However, the Waddell
& Reed shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal(s) of each Fund are set forth below. There is no assurance that a
Fund will achieve its goal.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Funds may invest, strategies WRIMCO
may employ in pursuit of a Fund's goal(s) and a summary of risks associated with
these instrument types and investment practices.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking
capital growth. The Fund seeks to achieve this goal by investing primarily in
common stocks, or securities convertible into common stocks, of companies that
have a record of paying regular dividends on common stock or have the potential
for capital appreciation.
When conditions are such that stocks with high yields are less attractive
than other common stocks, Total Return Fund may hold lower yielding or non-
dividend-paying common stocks because of their prospects for capital growth. At
other times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Total Return Fund's assets, including, without limitation, the following:
(i) hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
Growth Fund
The goal of Growth Fund is capital appreciation. The Fund seeks to achieve
this goal through a diversified holding of securities consisting primarily of
common stocks, or securities convertible into common stocks, of companies that
offer, in the opinion of WRIMCO, above-average growth potential, including
relatively new or unseasoned companies. Growth Fund is not intended for
investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be
subject to rapid and wide fluctuation. In selecting companies, WRIMCO usually
looks for such characteristics as aggressive or creative management, technology
or specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs. During normal market conditions, the Fund will have at
least 65% of its assets invested in growth securities.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve this
goal by investing primarily in debt securities of investment grade, including
U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted
average maturity of its portfolio of not less than two years and not more than
five years. The maturity of collateralized mortgage obligations ("CMOs") and
other asset-backed securities will be deemed to be the estimated average life of
such securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may
purchase are mortgage-backed securities of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and Fannie Mae (formerly, the Federal National Mortgage Association).
These mortgage-backed securities include pass-through securities, participation
certificates and collateralized mortgage obligations. The Fund will invest in
U.S. Government Securities not backed by the full faith and credit of the United
States only when WRIMCO is satisfied the credit risk is acceptable. The debt
securities, other than U.S. Government Securities, in which Limited-Term Bond
Fund invests include, without limitation, corporate bonds, medium-term notes,
asset-backed securities (such as mortgage-backed securities) and other financial
obligations that are commonly considered debt, all of which securities will be
denominated in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Limited-Term Bond Fund's assets, including, without limitation, the
following: (i) shorten the average maturity of the Fund's portfolio; (ii) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (iii) emphasize debt securities of a higher quality
than those the Fund would ordinarily hold; or (iv) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income taxation. The Fund seeks to achieve this goal by investing
primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the
interest on which is not includable in gross income for Federal income tax
purposes. See "Distributions and Taxes" for information concerning the
alternative minimum tax. Municipal Bond Fund and WRIMCO rely on the opinion of
bond counsel for the issuer in determining whether obligations are municipal
bonds.
The types of municipal bonds in which Municipal Bond Fund may invest
include "general obligation" bonds, "revenue" bonds and certain "industrial
development" bonds. Municipal obligations in which the Fund may invest also
include municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are
(i) U.S. Government Securities, (ii) bank obligations of domestic banks or
savings and loan associations that are subject to regulation by the U.S.
Government (including, without limitation, certificates of deposit, letters of
credit and acceptances), and (iii) commercial paper rated at least A by a
recognized statistical rating organization. Municipal Bond Fund may also
acquire these taxable obligations subject to repurchase agreements.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by Municipal Bond Fund may
change. Such changes, actual or expected, may also affect the value of these
debt securities, and in turn the value of Municipal Bond Fund's shares.
Dividends paid by Municipal Bond Fund that are derived from income from taxable
obligations, options and futures contracts and other derivative instruments in
which it may invest are subject to Federal income tax. See "Distributions and
Taxes."
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Municipal Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
International Growth Fund
The primary goal of International Growth Fund is the long-term appreciation
of your investment. Realization of income is a secondary goal. The Fund seeks
to achieve these goals by investing in securities issued by companies or
governments of any nation. The securities WRIMCO selects to attempt to achieve
the Fund's primary goal will be issued by companies that WRIMCO believes have
the potential for long-term growth.
There are three main kinds of securities that International Growth Fund
will own: common stocks, preferred stocks and debt securities. During normal
market conditions, the Fund will have at least 80% of its assets invested in
foreign securities and at least 65% of its assets invested in growth securities.
The securities that the Fund purchases because they may increase in value over
the long term will usually be common stocks or securities that may be converted
into common stocks or rights for the purchase of common stocks. All or a
substantial amount of International Growth Fund's assets may be invested in
foreign securities if, in WRIMCO's opinion, doing so might assist in achieving
the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of the
securities in the Fund's portfolio, WRIMCO may take certain steps with respect
to up to all of International Growth Fund's assets, including, without
limitation, the following: (i) invest in either debt securities (including
commercial paper or U.S. Government Securities) or preferred stocks or both; or
(ii) invest completely or substantially in U.S. securities. A defensive posture
may reduce the Fund's yield.
Asset Strategy Fund
The goal of Asset Strategy Fund is high total return over the long term.
The Fund seeks to achieve this goal by allocating its assets among stocks, bonds
and short-term instruments.
Allocating assets among different types of investments allows Asset
Strategy Fund to take advantage of opportunities wherever they may occur, but
also subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and
makes changes to favor investments that it believes provide the most favorable
outlook for achieving the Fund's goal. Although WRIMCO uses its expertise and
resources in choosing investments and in allocating assets, WRIMCO's decisions
may not always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments. The stock class includes equity securities of all types.
The bond class includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The short-term class includes all types of short-term instruments with
remaining maturities of three years or less. Within each of these classes,
Asset Strategy Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within
specified ranges. Asset Strategy Fund's mix indicates the benchmark for its
combination of investments in each class over time. WRIMCO may change the mix
within the specified ranges from time to time. The range and approximate
percentage of the mix for each asset class are shown below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
- --------- ------
Stock
class 0-100%
70%
Bond
class 0-100%
25%
Short-term
class 0-100%
5%
WRIMCO seeks to balance the investment risks undertaken by Asset
Strategy Fund against the higher total returns that may be available by reducing
exposure to the stock market during down cycles and allowing a higher allocation
in the stock class during periods of strongly positive market performance. The
Fund has the ability to take a more defensive posture by increasing its holdings
in the bond or short-term class when WRIMCO believes that there exists a
potential bear market, prolonged downturn in stock prices or significant loss in
value. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try to
pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, as a temporary defensive measure at times when WRIMCO
believes that a mix of stocks, bonds and certain short-term instruments does not
offer a good investment opportunity, it may temporarily invest up to all of
Asset Strategy Fund's assets in (i) money market instruments rated A-1 by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or
Prime 1 by Moody's Investors Service, Inc. ("MIS"), or unrated securities judged
by WRIMCO to be of equivalent quality, or (ii) bullion. S&P and MIS ratings are
described in Appendix A to the SAI. A defensive posture may reduce the Fund's
yield.
Asset Strategy Fund diversifies across investment types more than most
mutual funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
Science and Technology Fund
The goal of Science and Technology Fund is long-term capital growth. The
Fund seeks to achieve this goal by concentrating its investments in science and
technology securities. Science and technology securities are securities of
companies whose products, processes or services, in WRIMCO's opinion, are being
or are expected to be significantly benefited by the utilization or commercial
application of scientific or technological discoveries or developments in such
areas as aerospace, communications and electronic equipment, computer systems,
computer software and services, electronics, electronic media, business
machines, office equipment and supplies, biotechnology, medical and hospital
supplies and services, medical devices and drugs. Certain risks are associated
with science and technology securities, including the impact of governmental
regulation and rapid obsolescence of issuers' products or processes.
Under normal economic and market conditions, Science and Technology Fund
will not invest in any securities other than science securities or technology
securities if, after such investment, more than 20% of its total assets would be
invested in such other securities. The Fund may own common stock, preferred
stock, debt securities and convertible securities. At times, as a temporary
defensive measure, the Fund may invest up to all of its assets in U.S.
Government Securities or other debt securities.
High Income Fund
The primary goal of High Income Fund is high current income; as a secondary
goal, it seeks capital growth when consistent with the primary goal. The Fund
attempts to achieve these goals by investing primarily in a diversified
portfolio of high-yield, high-risk, fixed-income securities. These include
corporate bonds and notes, convertible securities and preferred stocks that are
rated in the lower rating categories of the established rating services (Baa or
lower by MIS or BBB or lower by S&P), or are unrated securities that are, in the
opinion of WRIMCO, of similar quality to rated securities in these categories.
Under normal market conditions, at least 65% of the value of the Fund's
total assets will be invested to seek a high level of current income, which
securities may include high-yield, high-risk securities. A portion of the
Fund's assets may be invested in common stocks; however, the Fund will not
purchase any common stocks if, after such purchase, more than 20% of the value
of its total assets would be invested in common stocks. This 20% limit includes
common stocks acquired on conversion of convertible securities, on exercise of
warrants or call options or in any other voluntary manner. The Fund will invest
in common stocks in order to attempt to achieve either a combination of its
primary and secondary goals, in which case the common stocks will be dividend-
paying, or to achieve its secondary goal, in which case the common stocks may
not pay dividends. The Fund does not anticipate investing more than 4% of its
total assets in non-dividend-paying common stocks.
When WRIMCO believes that a full or partial temporary defensive position is
desirable, due to present or anticipated market or economic conditions, WRIMCO
may take any one or more of the following steps with respect to up to all of the
assets in the Fund's portfolio: (i) shortening the average maturity of the
Fund's debt portfolio; (ii) holding cash or cash equivalents (short-term
investments, such as commercial paper and certificates of deposit); and (iii)
emphasizing higher-rated debt securities if WRIMCO believes that the risk of
loss of income and principal may be reduced with a relatively small reduction in
yield. A defensive posture may reduce the Fund's yield. As an alternative to
taking a temporary defensive position or in order to more quickly participate in
anticipated market changes or market conditions, the Fund may invest in options
and futures.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to
varying degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of each Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of each Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Because each Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward contracts,
swaps, caps, collars, floors, indexed securities, stripped securities and
mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest, and strategies WRIMCO may employ in
pursuit of the Funds' goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by a Fund's investment policies and
restrictions unless it believes that doing so will help that Fund achieve its
goal.
Certain of the investment policies and restrictions of each Fund are
also stated below. A fundamental policy of a Fund may not be changed without
the approval of the shareholders of that Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal(s) of each Fund are fundamental policies. Unless
otherwise indicated, the types of securities and other assets in which a Fund
may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Policies and Restrictions: High Income Fund will not purchase any
common stocks if, after such purchase, more than 20% of the value of its total
assets would be invested in common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which a
Fund (other than Municipal Bond Fund) invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
A Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
bonds are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon bonds do not pay current income, their prices can be very
volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue a
ratable portion of the OID on the security as income each year, even though the
holder may receive no interest payment on the security during the year.
Accordingly, although a Fund will receive no payments on its zero coupon bonds
prior to their maturity or disposition, it will have current income attributable
to those securities. Nevertheless, for income and excise tax purposes each Fund
annually must distribute to its shareholders substantially all of its net
investment income, including OID. Accordingly, each Fund will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon and other OID bonds. See "Taxes" in the SAI. Those dividends will be
paid from a Fund's cash assets or by liquidation of portfolio securities, if
necessary, at a time when the Fund otherwise might not have done so.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). In addition, Asset Strategy Fund and High Income Fund
will treat unrated securities judged by WRIMCO to be of equivalent quality to a
rated security to be equivalent to securities having that rating. Debt
securities rated at least BBB by S&P or Baa by MIS are considered to be
investment grade debt securities. Securities rated BBB or Baa may have
speculative characteristics. Debt securities rated D by S&P or C by MIS are in
payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. While credit ratings are only one
factor WRIMCO relies on in evaluating high-yield debt securities, certain risks
are associated with credit ratings. Credit ratings evaluate the safety of
principal and interest payments, not market value risk. Credit ratings for
individual securities may change from time to time, and a Fund may retain a
portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately-operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Corporation's Board
of Directors. Unrated municipal lease obligations will be considered to be
illiquid. In determining the credit quality of unrated municipal lease
obligations, one of the factors, among others, to be considered will be the
likelihood that the lease will not be canceled. Certain "non-appropriation"
lease obligations may present special risks because the municipality's
obligation to make future lease or installment payments depends on money being
appropriated each year for this purpose.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of
Municipal Bond Fund's net assets will be invested during normal market
conditions in municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal
bonds of investment grade.
Municipal Bond Fund does not intend to invest more than 50% of its
assets in industrial development bonds.
Debt Holdings, by Ratings. During the fiscal year ended March 31, 1997,
the percentage of the assets of Asset Strategy Fund invested in debt securities
in each of the rating categories of S&P and the corporate debt securities not
rated by an established rating service, determined on a dollar-weighted average,
were as follows:
Percentage of
Rated Assets of Asset
by S&P Strategy Fund
- ------ ----------------
AAA 23.9%
AA 4.9
A 17.2
BBB 1.4
BB 6.6
B 3.3
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated 2.4
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in Asset Strategy Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to
the SAI. The Funds (other than Municipal Bond Fund) may invest in preferred
stock rated in any rating category by an established rating service and unrated
preferred stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: At least 65% of the total assets of Limited-
Term Bond Fund will be invested during normal market conditions in bonds.
At least 65% of the total assets of Municipal Bond Fund will be invested
during normal market conditions in bonds exclusive of other municipal debt
obligations. Up to 10% of Municipal Bond Fund's assets may be invested in debt
securities other than municipal bonds ("taxable obligations").
High Income Fund may invest in debt securities rated in any category by
the established rating services or determined by WRIMCO to be of equivalent
quality. At least 65% of the total assets of High Income Fund will be invested
during normal market conditions to seek a high level of current income.
Limited-Term Bond Fund does not intend to invest more than 50% of its
assets in securities rated in the lowest tier of investment grade debt
securities (those rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund and Science and Technology Fund may not invest
in non-investment grade debt securities if as a result of such investment more
than 5% of that Fund's assets would consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-
quality debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently
intend to invest in money-market instruments rated below the highest rating
category by S&P or MIS, or judged by WRIMCO to be of equivalent quality;
provided, however, that the Fund may invest in money-market instruments rated
below the highest rating category by S&P or MIS if such instrument is subject to
a letter of credit or similar unconditional credit enhancement which is rated A-
1 by S&P or Prime 1 by MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: Subject to the limitations set forth below,
International Growth Fund, Total Return Fund and Growth Fund may purchase
foreign securities only if they are (i) listed or admitted to trading on a
domestic or foreign securities exchange or quoted on an automated quotations
system, with the exception of warrants, rights or restricted securities, which
need not be so listed or admitted, or (ii) represented by American Depositary
Receipts (receipts issued against securities of foreign issuers deposited or to
be deposited with an American depository) so listed or admitted on a domestic
securities exchange or traded in the U.S. over-the-counter ("OTC") market, or
(iii) issued or guaranteed by any foreign government or any subdivision, agency
or instrumentality thereof.
Normally at least 80% of International Growth Fund's assets will be
invested in foreign securities. Under normal market conditions, International
Growth Fund will have at least 65% of its assets invested in at least three
different countries outside the United States. International Growth Fund may
not purchase a foreign security if as a result more than 75% of its assets would
be invested in securities of any one foreign country. International Growth Fund
will not invest more than 25% of its total assets in the securities issued by
the government of any one foreign country.
Under normal market conditions, Asset Strategy Fund intends to limit its
investments in foreign securities to no more than 50% of total assets. Asset
Strategy Fund currently intends to limit its investments in obligations of any
single foreign government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their
respective assets in foreign securities.
Science and Technology Fund may not invest more than 20% of its net assets
in foreign securities. High Income Fund may purchase an unlimited amount of
foreign securities. High Income Fund will not invest more than 25% of its total
assets in securities issued by the government of any one foreign country.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain options,
futures contracts, forward currency contracts, swaps, caps, collars, floors,
indexed securities, mortgage-backed and other asset-backed securities and
certain other strategies described herein to attempt to enhance income or yield
or to attempt to reduce the risk of its investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value. A Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally a Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options, forward
contracts, swaps, caps, collars and floors and (except for Municipal Bond Fund)
indexed securities). However, a Fund will only purchase or sell a particular
derivative instrument if the Fund is authorized to invest in the type of asset
by which the return on, or value of, the derivative instrument is primarily
measured or, with respect to foreign currency derivatives, if the Fund is
authorized to invest in foreign securities.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the offsetting put or call. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities, or cash in the case of an option on an index,
subject to the call or the collateral underlying the put until a closing
purchase transaction can be entered into or the option expires. Because index
options are settled in cash, a Fund cannot provide in advance for its potential
settlement obligations on a call it has written on an index by holding the
underlying securities. The Fund bears the risk that the value of the securities
it holds will vary from the value of the index.
Futures Contracts and Options on Futures Contracts. When a Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. When a Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed-upon price.
When a Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If a Fund writes a call, it assumes a short futures position. If it
writes a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires the right, in return for the premium
it pays, to assume a position in the futures contract (a long position if the
option is a call and a short position if the option is a put).
Forward Contracts and Foreign Currencies. Each Fund (other than Limited-
Term Bond Fund and Municipal Bond Fund) may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and a foreign currency. For example, when
WRIMCO anticipates purchasing or selling a security denominated in a foreign
currency, a Fund may enter into a forward contract in order to set the exchange
rate at which the transaction will be made. A Fund also may enter into a
forward contract to sell an amount of a foreign currency approximating the value
of some or all of the Fund's securities positions denominated in such currency.
Each of these Funds may also use forward contracts in one currency or a basket
of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if WRIMCO anticipates that there
will be a correlation between the two currencies.
Each of these Funds may also use forward currency contracts to shift the
Fund's exposure to foreign currency exchange rate changes from one foreign
currency to another. For example, if a Fund owns securities denominated in a
foreign currency and WRIMCO believes that currency will decline relative to
another currency, it might enter into a forward contract to sell the appropriate
amount of the first foreign currency with payment to be made in the second
foreign currency. Transactions that use two foreign currencies are sometimes
referred to as "cross hedging." Use of a different foreign currency magnifies
the Fund's exposure to foreign currency exchange rate fluctuations. Each of
these Funds may also purchase forward currency contracts to enhance income when
WRIMCO anticipates that the foreign currency will appreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time.
Each Fund (other than Limited-Term Bond Fund and Municipal Bond Fund) may
also purchase and sell foreign currency and invest in foreign currency deposits.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may
purchase indexed securities, which are securities the value of which varies in
relation to the value of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, subject to
its operating policy regarding derivative instruments. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instruments.
Swaps, Caps, Collars and Floors. A Fund may enter into swaps, caps,
collars and floors as described below. A Fund may enter into these transactions
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against any increase in the price of securities a Fund
anticipates purchasing at a later date or to attempt to enhance income or yield.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor
agreements used by a Fund may also increase or decrease the overall volatility
of its investments and its share price and yield. The most significant factor
in the performance of these agreements is the change in the specific interest
rate, currency or other factors that determine the amounts of payments due to
and from the Fund.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting a Fund's yield. Actual prepayment experience may cause the
yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Policies and Restrictions: Each Fund may invest in mortgage-backed, asset-
backed and stripped securities as long as WRIMCO determines that it is
consistent with the Fund's goal(s) and investment policies.
Municipal Bond Fund may only purchase mortgage-backed securities issued by
government entities.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities, involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by a Fund on options it purchases, and (viii) the possible inability of a Fund
to purchase or sell a portfolio security at a time when it would otherwise be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with such transactions and the
possible inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of a Fund's portfolio diverges from instruments underlying a hedging
instrument. Such equal price changes are not always possible because the
investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of a Fund's portfolio of investments and may use these
instruments to adjust the return characteristics of a Fund's portfolio of
investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with a Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that a Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate or stock market movements
or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. Each Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund sells a security on a delayed-delivery basis, a Fund
does not participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity, or
could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, Asset Strategy Fund, Science and Technology Fund
and High Income Fund may purchase securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: International Growth Fund may purchase
restricted foreign securities, provided that, after such purchase, not more than
5% of its total assets consist of restricted securities. Total Return Fund,
Limited-Term Bond Fund, International Growth Fund and Science and Technology
Fund do not intend to invest in restricted securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, Science and Technology Fund and High Income
Fund each may not invest more than 10% of its net assets in illiquid
investments.
Asset Strategy Fund may not purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in
a security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund, other than Science and Technology
Fund, may buy a security if, as a result, 25% or more of the Fund's total assets
would then be invested in securities of issuers having their principal business
activities in the same industry, except for municipal bonds (other than
industrial development bonds) and U.S. Government Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund,
Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund, International Growth
Fund, Science and Technology Fund and High Income Fund may borrow money from
banks for temporary, extraordinary or emergency purposes but only up to 5% of
their respective assets. Borrowing for temporary measures may include borrowing
to cover redemptions or settlements of securities transactions.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of
Total Return Fund, Growth Fund, International Growth Fund, Science and
Technology Fund or High Income Fund or 30% of the assets of Limited-Term Bond
Fund, may be loaned at any one time. As a fundamental policy, Asset Strategy
Fund may not lend more than 10% of its total assets at one time. As a
fundamental policy, Municipal Bond Fund may not lend its securities.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, a Fund would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund
may not purchase warrants.
No Fund (other than Growth Fund and Science and Technology Fund) may invest
more than 5% of its assets taken at market value at the time of investment in
companies, including predecessors, with less than three years continuous
operation. This restriction does not apply to U.S. Government Securities or
obligations issued or guaranteed by a state or local government authority, or
its agencies or instrumentalities, or to CMOs, other mortgage-related
securities, asset-backed securities, indexed securities or over-the-counter
derivative financial instruments.
As a fundamental policy, Total Return Fund, Growth Fund, International
Growth Fund, Science and Technology Fund and High Income Fund may buy shares of
other investment companies that do not redeem their shares only if they do so in
a regular transaction in the open market and in compliance with the requirements
of the Investment Company Act of 1940, as amended (the "1940 Act"). Each of
these Funds may purchase such securities if, as a result of such purchase, no
more than 10% of its total assets are invested in such securities. Science and
Technology Fund and High Income Fund do not currently intend to invest more than
5% of their respective assets in the shares of other investment companies.
Asset Strategy Fund does not currently intend to purchase securities of other
investment companies that do not redeem their shares except in the open market
where no commission except the ordinary broker's commission is paid and if, as a
result of such purchase, not more than 10% of its total assets are invested in
such securities.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
. Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. For 1997, the
maximum for an investor and his or her spouse is $4,000 ($2,000 per spouse)
or, if less, the couple's combined earned income for the taxable year.
. Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
. Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
involve fewer administrative requirements than 401(k) or other qualified plans
generally.
. Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
. 401(k) Programs allow employees of corporations and non-governmental tax-
exempt organizations of all sizes to contribute a percentage of their wages
on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
. 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
. 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying Federal transfer tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and
its account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' shares are sold without a sales
charge.
A Fund's Class B NAV is the value of a single Class B share of that Fund.
A Fund's Class B NAV is computed by adding, with respect to that class, the
value of that Fund's investments, cash and other assets, subtracting its
liabilities, and then dividing the result by the number of Class B shares
outstanding.
The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices provided by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
assets are valued at their fair value by or at the direction of the Board of
Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges
which may trade on Saturdays or on customary U.S. national business holidays
when the NYSE is closed. Consequently, the NAV of such Fund shares may be
significantly affected on days when the Funds do not price their shares and when
you have no access to the Funds.
When you place an order to buy shares, your order will be processed
at the next NAV calculated after your order is received and accepted. Note the
following:
_ Orders are accepted only at the home office of Waddell & Reed, Inc.
_ All of your purchases must be made in U.S. dollars.
_ If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
. The Funds do not issue certificates representing shares of a Fund.
When you sign your account application, you will be asked to certify
that your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account$1,000
For certain exchanges$100
For certain retirement accounts and accounts opened through Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges$100
For Automatic Investment Service $25
The minimum investment required to open an account may be waived or reduced
for purchases by employees of Waddell & Reed, Inc. or its affiliates, certain
pension and retirement plan accounts and participants in automatic investment
plans.
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
_ the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
_ a letter stating your account number, the account registration, and that you
wish to purchase Class B shares of the Fund.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The Corporation will redeem your Class B shares at their NAV next
calculated after receipt of a written request for redemption in good order,
subject to the contingent deferred sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
any time during the calendar year of investment and the first full calendar year
after the calendar year of investment 3%
second full calendar year 2%
third full calendar year 1%
after third full calendar year 0%
The deferred sales charge will be applied to the total amount invested
during a calendar year to acquire shares or the value of the shares redeemed,
whichever is less. All investments made during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
deferred sales charge.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
_ the name on the account registration;
_ the Fund's name;
_ the Fund account number;
_ the dollar amount or number of shares to be redeemed; and
_ any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
Note the following:
. If more than one person owns the shares, each owner must sign the written
request.
. If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
. Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on
certain redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Corporation may require a signature guarantee in
certain situations, such as:
. the request for redemption is made by a corporation, partnership or
fiduciary;
. the request for redemption is made by someone other than the owner of record;
or
. the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
Contingent Deferred Sales Charge. A contingent deferred sales charge may
be assessed against your redemption amount and paid to Waddell & Reed, Inc. (the
"Distributor"), subject to the limitation described under "Distribution" and as
further described below. The purpose of the deferred sales charge is to
compensate the Distributor for the costs incurred by it in connection with the
sale of a Fund's Class B shares. The deferred sales charge will not be imposed
on Class B shares representing payment of dividends or distributions or on
amounts which represent an increase in the value of a shareholder's account
resulting from capital appreciation above the amount paid for Class B shares
purchased during the deferred sales charge period.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing payment of dividends and distributions and then of Class B
shares held by the shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem a
specific dollar amount, will redeem additional Class B shares equal in value to
the deferred sales charge. For example, should you request a $1,000 redemption
and the applicable deferred sales charge is $27, the Fund will redeem shares
having an aggregate NAV of $1,027, absent different instructions.
The deferred sales charge will not apply in the following circumstances:
. in connection with redemptions of Class B shares requested within one year of
the shareholder's death or disability, provided the Corporation is notified
of the death or disability at the time of the request and furnished proof of
such event satisfactory to the Distributor.
. in connection with redemptions of Class B shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code section 403(b)(7) custodial account, or a tax-
free return of an excess contribution, or that otherwise results from the
death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a result of
a subsequent law or legislation, the continuation of its investment would be
improper.
. in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
. in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for a
Fund.
. in connection with redemptions the proceeds of which are reinvested in Class
B shares of a Fund within thirty days after such redemption.
. in connection with the exercise of certain exchange privileges.
. on redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B shares of a Fund if the aggregate NAV of those shares
is less than $500.
. in connection with redemptions effected by another registered investment
company by virtue of a merger or other reorganization with a Fund or by a
former shareholder of such investment company of Class B shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at any
time without prior notice to shareholders, except with respect to redemptions
effected pursuant to the Corporation's right to liquidate a shareholder's
shares, which requires certain notices.
The Corporation reserves the right to redeem at NAV all Class B shares of a
Fund owned or held by you having an aggregate NAV of less than $500. The
Corporation will give you notice of its intention to redeem your shares and a
60-day opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares of that Fund to $500. These redemptions are
not subject to the deferred sales charge. The Corporation will not apply its
redemption right to individual retirement plan accounts, retirement accounts or
accounts which have an aggregate NAV of less than $500 due to market forces.
You may reinvest in any one of the eight Funds all or part of the amount
you redeemed by sending to the Fund the amount you want to reinvest. If you
reinvest within thirty days after the date of your redemption, the Distributor
will, with your reinvestment, restore an amount equal to the deferred sales
charge attributable to the amount reinvested by adding the deferred sales charge
amount to your reinvestment. For purposes of determining future deferred sales
charges, the reinvestment will be treated as a new investment. You may do this
only once as to shares of the Corporation. This privilege may be eliminated or
modified at any time without prior notice to shareholders.
Under the terms of the 401(k) prototype plan which the Distributor has
available, the plan may have the right to make a loan to a plan participant by
redeeming Corporation shares held by the plan. Principal and interest payments
on the loan made in accordance with the terms of the plan may be reinvested by
the plan in shares of any of the Funds in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports will
be mailed to your household, even if you have more than one account with the
Funds. Call the telephone number listed on the inside back cover of this
Prospectus if you need copies of annual or semiannual reports or historical
account information.
Exchanges
You may sell your Class B shares of any of the Funds and buy Class B
shares of another Fund, or Class B shares of United Cash Management, Inc., a
fund in the United Group of Mutual Funds, without payment of a deferred sales
charge. The time period with respect to the deferred sales charge will continue
to run. Subject to certain conditions stated in the SAI, automatic monthly
exchanges of Class A shares of United Cash Management, Inc. may be made into the
Funds.
Exchanges may only be made into Funds which are legally registered for sale
in the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
<PAGE>
Automatic Transactions
Flexible Withdrawal Service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund
account, or between Fund accounts, automatically. While Regular Investment
Plans do not guarantee a profit and will not protect you against loss in a
declining market, they can be an excellent way to invest for retirement, a home,
educational expenses, and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing account with Waddell & Reed
Funds, Inc.
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund in Waddell & Reed
Funds, Inc., whether in the same or a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, at the following times: Total Return Fund, Growth Fund and
International Growth Fund and Science and Technology Fund, annually in December;
Asset Strategy Fund, quarterly in March, June, September and December; and
Limited-Term Bond Fund, Municipal Bond Fund and High Income Fund declared daily
and paid monthly. Net capital gains (and any net gains from foreign currency
transactions) ordinarily are distributed in December. Each Fund may make
additional distributions if necessary to avoid Federal income or excise taxes on
certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains and other
distributions will be automatically paid in additional Class B shares of the
distributing Fund. If you do not indicate a choice on your application, you
will be assigned this option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in additional Class B shares of the distributing Fund,
but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividends and capital gains
and other distributions.
For retirement accounts, all distributions are automatically paid in
additional Class B shares of the distributing Fund.
Taxes
Science and Technology Fund and High Income Fund intend, and each of the
other Funds intends to continue, to qualify for treatment as a regulated
investment company under the Code, so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) and net capital gains (the excess of net
long-term capital gains over net short-term capital losses) that are distributed
to its shareholders. In addition, Municipal Bond Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each calendar quarter at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
There are certain tax requirements that the Funds must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, a Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund
will be taxed. If your account is not a tax-deferred retirement account (or you
are not otherwise exempt from income tax), you should be aware of the following
tax implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income, whether received in cash
or paid in additional Fund shares. Distributions by Municipal Bond Fund that
are designated by it as exempt-interest dividends generally may be excluded by
you from your gross income. Distributions of a Fund's net capital gains, when
designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. Each Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
A portion of the dividends paid by Total Return Fund, Growth Fund, Asset
Strategy Fund, International Growth Fund and/or Science and Technology Fund,
whether received in cash or paid in additional Fund shares, may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax ("AMT"). No part of the dividends
paid by Limited-Term Bond Fund, Municipal Bond Fund and High Income Fund is
expected to be eligible for this deduction.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to
income taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; that Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. Municipal Bond
Fund will provide you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year. Shareholders who may be
subject to the AMT should consult with their tax advisers concerning investment
in that Fund.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs is not
exempt from Federal income tax. For these purposes, the term "substantial user"
is defined generally to include a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of PABs.
Withholding. Each Fund is required to withhold 31% of all taxable
dividends, capital gains distributions and redemption proceeds payable to
individuals and certain other noncorporate shareholders who do not furnish the
Fund with a correct taxpayer identification number. Withholding at that rate
from taxable dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares. An exchange of
shares of one Fund for shares of any other Fund generally will have similar tax
consequences. In addition, if you purchase shares of a Fund within thirty days
before or after redeeming other shares of that Fund (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly-purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
State income taxes. The portion of the dividends paid by Limited-Term
Bond Fund (and, to a lesser extent, the other Funds) attributable to the
interest earned on its U.S. Government Securities generally are not subject to
state and local income taxes, although distributions by any Fund to its
shareholders of net realized gains on the disposition of those securities are
fully subject to those taxes. You should consult your tax adviser to determine
the taxability of dividends and other distributions by the Funds in your state
and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders; see the SAI
for a more detailed discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end, diversified management investment
company organized as a corporation under Maryland law on January 29, 1992.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has eight series of shares (the "Funds"), each of which
operates as a separate mutual fund with separate assets and liabilities. Each
Fund is a diversified fund. An investor in one of the Funds has an interest
only in that Fund.
Each Fund has two classes of shares. In addition to the Class B shares
offered by this Prospectus the Corporation has issued and outstanding Class Y
shares which are offered by Waddell & Reed, Inc. through a separate Prospectus.
Class Y shares are designed for institutional investors. Class Y shares are not
subject to a contingent deferred sales charge and are not subject to redemption
fees. Class Y shares are subject to Rule 12b-1 fees and may have other expenses
that differ in amount from those of the Class B shares. Additional information
about Class Y shares may be obtained by calling or by writing to Waddell & Reed,
Inc. at the telephone number or address on the inside back cover of this
Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by a Fund of a request in writing signed by shareholders holding not
less than 10% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Corporation are met. There will normally
be no meeting of the shareholders for the purpose of electing directors until
such time as less than a majority of directors holding office have been elected
by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the 1940 Act applies to the Corporation, the directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of the outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or class, in which case only the shareholders of the affected Fund or class
is entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United Asset
Strategy Fund, Inc., since 1940 or the inception of the company, whichever was
later, and to TMK/United Funds, Inc. since that fund's inception, until January
8, 1992, when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO has
also served as investment manager for United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day management
of the portfolio of Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund and Vice President of another investment company for
which WRIMCO serves as investment manager. Mr. Seferovich has served as the
portfolio manager of investment companies managed by Waddell & Reed, Inc. and
its successor, WRIMCO, since February 1989 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management
of the portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Mr. Sterner was Chief Investment Officer of The
Merchants Bank from 1985 to August 1992.
John M. Holliday is primarily responsible for the day-to-day management of
the portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Thomas A. Mengel is primarily responsible for the day-to-day management of
the portfolio of International Growth Fund. Mr. Mengel has held his Fund
responsibilities since May 1, 1996. Mr. Mengel is Vice President of WRIMCO.
From 1993 to 1996, Mr. Mengel was the President of Sal. Oppenheim jr. & Cie.
Securities, Inc.; from 1992 to 1993, Mr. Mengel was a Vice President at Hauck
and Hope Securities; and from 1989 to 1992, Mr. Mengel was the Manager of German
Equities at Berliner Bank, in Berlin, Germany.
Michael L. Avery is primarily responsible for the day-to-day management
of the equity portion of the portfolio of Asset Strategy Fund. Mr. Avery has
held his Fund responsibilities since January 1997. He is Senior Vice President
of WRIMCO, Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO, Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. Mr. Avery
has served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. and its successor, WRIMCO, since February 1, 1994, has served as
the director of research of Waddell & Reed, Inc. and its successor, WRIMCO,
since August 1987, and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since June 1981.
Daniel J. Vrabac is primarily responsible for the day-to-day management of
the fixed-income portion of the portfolio of Asset Strategy Fund. Mr. Vrabac
has held his Fund responsibilities since January 1997. He is Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO, Vice President
of the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Vrabac has served as an investment analyst
with WRIMCO since May 1994, and was a Vice President of Kansas City Life
Insurance Company from May 1983 to May 1994.
Abel Garcia is primarily responsible for the day-to-day management of the
portfolio of Science and Technology Fund. Mr. Garcia has held his Fund
responsibilities since July 31, 1997. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund, and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Garcia has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1983.
Louise D. Rieke is primarily responsible for the day-to-day management of
the portfolio of High Income Fund. Ms. Rieke has held her Fund responsibilities
since July 31, 1997. She is Vice President of WRIMCO and Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO. She is Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Ms. Rieke has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1990 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since May 1971.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole
distributor of the Corporation's shares. Waddell & Reed, Inc. also serves as
underwriter for each of the funds in the United Group of Mutual Funds and acts
as the principal underwriter and distributor for variable life insurance and
variable annuity policies issued by United Investors Life Insurance Company, for
which TMK/United Funds, Inc. is the underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing
so may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in the share
price or dividends of that Fund; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the
close of business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
Science and Technology
Fund 0.71%
High Income
Fund 0.66%
The management fee is accrued and paid to WRIMCO daily. The management
fee for Growth Fund, International Growth Fund and Asset Strategy Fund is higher
than that of most funds.
For the fiscal year ended March 31, 1997, management fees for each Fund
then in existence as a percentage of each such Fund's net assets were as
follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.80%
(formerly Global
Income Fund)
Asset Strategy
Fund 0.76%
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class B shares, each Fund pays the Shareholder Servicing Agent a monthly fee for
each Class B shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month. Inquiries concerning your accounts should be sent
to the Shareholder Servicing Agent at the address shown on the inside back cover
of this Prospectus or to the Corporation.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
For the fiscal year ended March 31, 1997, total expenses for each Fund's
Class B shares as a percentage of average net assets were as follows: Total
Return Fund 1.95%; Growth Fund 2.12%; Limited-Term Bond Fund 2.07%; Municipal
Bond Fund 1.92%; International Growth Fund 2.46%; and Asset Strategy Fund 2.52%.
The Funds may have a high portfolio turnover. See the Financial Highlights
Table for past turnover rates of Total Return Fund, Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, International Growth Fund, and Asset Strategy
Fund. Science and Technology Fund and High Income Fund cannot precisely predict
what their respective portfolio turnover rates will be; however, it is
anticipated that the annual turnover rate for each of these Funds will not
exceed 100%. International Growth Fund's ability to invest all or a substantial
amount of its assets in foreign securities may result in a higher turnover rate
and higher commission costs. A high turnover rate will increase a Fund's
transaction costs and commission costs and could generate taxable income or
loss.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized
under a Distribution and Service Plan (the "Plan"), may finance the distribution
of the Class B shares of the Funds and/or the service and maintenance of Class B
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 1%
annually of the Fund's average net assets of its Class B shares. There are two
parts to this fee: up to 0.75% may be paid to the Distributor for distribution
services and distribution expenses including commissions paid by the Distributor
to its sales representatives and managers (the "distribution fee") with respect
to the distribution of the particular Fund's Class B shares, and up to 0.25% may
be paid to the Distributor to finance the provision of certain personal services
by the Distributor and Waddell & Reed Services Company to Class B shareholders
and the provision of services to maintain Class B shareholder accounts (the
"service fee").
In addition to these fees, the Distributor may be compensated for
distribution of the Class B shares of a Fund by a contingent deferred sales
charge ("deferred sales charge") imposed at the time of redemption. See "About
Your Account."
The distribution fee and the deferred sales charge are designed to allow
investors to purchase Class B shares without a front-end sales charge and at the
same time to allow the Distributor to pay commissions to its field sales force
and pay other expenses of distribution including the cost of prospectuses for
prospective investors, sales literature, advertising, sales office expenses and
overhead. In this respect, the distribution fee and deferred sales charge are
comparable to a front-end sales charge. See "Expenses" for the amount of these
charges and the service fee that may be paid over certain periods. The
distribution fee would be the equivalent of a 6.25% and 7.25% front-end sales
charge after 9 and 10.5 years respectively, assuming a 5% growth rate. These
are the maximum sales charges permitted under Rules of the National Association
of Securities Dealers, Inc. (the "NASD") for asset-based sales charges and
front-end sales charges, respectively, were the Corporation's Class B shares
offered with such charges.
No payment of the distribution fee will be made, and no deferred sales
charge will be paid, to the Distributor by any Fund if, and to the extent that,
the aggregate of the distribution fees paid by the Fund and the deferred sales
charges received by the Distributor would exceed the maximum amount of such
charges that the Distributor is permitted to receive under NASD rules as then in
effect.
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Corporation may use. The Corporation may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A
Standard & Poor's ("S&P") corporate bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service ("MIS") rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Description of Preferred Stock Ratings
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
note rating reflects the liquidity factors and market access risks unique to
notes. Notes maturing in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS ratings
for state and municipal short-term obligations will be designated MIS Investment
Grade (MIG). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity of
the borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the short
run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to D for the lowest. Issuers rated A are further referred to by use
of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues
assigned an A rating (the highest rating) are regarded as having the greatest
capacity for timely payment. An A-1 designation indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. An A-2 rating indicates that capacity for timely payment is
satisfactory; however, the relative degree of safety is not as high as for
issues designated A-1. Issues rated A-3 have adequate capacity for timely
payment; however, they are more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Issues rated B
are regarded as having only speculative capacity for timely payment. A C rating
is assigned to short-term debt obligations with a doubtful capacity for payment.
Debt rated D is in payment default, which occurs when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Accountants Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
Waddell & Reed Funds, Inc.
Class B Shares
PROSPECTUS
July 31, 1997
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
Science and Technology Fund
High Income Fund
WRP4000(7-97)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 31, 1997. The SAI is available free upon request to the Corporation
or Waddell & Reed, Inc., its principal underwriter and distributor, at the
address or telephone number below. The SAI is incorporated by reference into
this Prospectus and you will not be aware of all facts unless you read both this
Prospectus and the SAI.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
HIGH INCOME FUND MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS ISSUED BY
DOMESTIC OR FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE, COMMONLY KNOWN AS
"JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE
FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE
RISKS BEFORE INVESTING. SEE "ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS"
INCLUDED IN THIS PROSPECTUS FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH NON-
INVESTMENT GRADE DEBT SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND
RATINGS.
Waddell & Reed Funds, Inc.
Class Y Shares
Waddell & Reed Funds, Inc. (the "Corporation") is a management investment
company that has eight separate funds (the "Funds"), each of which is designed
for investors with different goals. Total Return Fund seeks to provide current
income while seeking capital growth. Growth Fund seeks capital appreciation.
Limited-Term Bond Fund seeks to provide a high level of current income
consistent with preservation of capital. Municipal Bond Fund seeks to provide
income which is not subject to Federal income taxation. International Growth
Fund seeks long-term appreciation as its primary goal and realization of income
as its secondary goal. Asset Strategy Fund seeks high total return over the
long term. Science and Technology Fund seeks long-term capital growth through
investments primarily in science and technology securities. High Income Fund
seeks high current income as a primary goal and capital growth as a secondary
goal.
This Prospectus describes one class of shares of each of the Funds--Class Y
shares.
Prospectus
July 31, 1997
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.....................................8
EXPENSES.......................................................11
FINANCIAL HIGHLIGHTS...........................................27
FINANCIAL HIGHLIGHTS...........................................29
FINANCIAL HIGHLIGHTS...........................................31
FINANCIAL HIGHLIGHTS...........................................33
FINANCIAL HIGHLIGHTS...........................................35
FINANCIAL HIGHLIGHTS...........................................37
PERFORMANCE....................................................39
Explanation of Terms .........................................39
ABOUT WADDELL & REED...........................................41
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...................42
Investment Goals and Principles ..............................42
ABOUT YOUR ACCOUNT.............................................43
Buying Shares ................................................43
Minimum Investments ..........................................45
Adding to Your Account .......................................45
Selling Shares ...............................................45
Telephone Transactions .......................................47
Shareholder Services .........................................48
Personal Service ...........................................48
Reports ....................................................48
Exchanges ..................................................48
Distributions and Taxes ......................................49
Distributions ..............................................49
Taxes ......................................................49
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS.................53
WRIMCO and Its Affiliates ....................................54
Breakdown of Expenses ........................................57
Management Fee .............................................57
Other Expenses .............................................58
Distribution ...............................................59
APPENDIX A.....................................................61
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes the Class Y shares of each of the Funds of
Waddell & Reed Funds, Inc. (the "Corporation"), an open-end, management
investment company. Each Fund has different investment goals and policies.
Each of the Funds is a diversified fund.
Goals, Strategies and Risk Considerations:
Total Return Fund seeks to provide current income while seeking capital
growth. This Fund invests primarily in common stocks, or securities convertible
into common stocks, of companies that have a record of paying regular dividends
on common stock or have the potential for capital appreciation. Although common
stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term, particularly those of smaller companies.
Growth Fund seeks capital appreciation. This Fund invests primarily in common
stocks, or securities convertible into common stocks, of companies that offer,
in the opinion of the Fund's investment manager, above-average growth potential,
including relatively new or unseasoned companies. Although common stocks have a
history of long-term growth in value, their prices tend to fluctuate in the
short term, particularly those of smaller companies.
Limited-Term Bond Fund seeks a high level of current income consistent with
preservation of capital. This Fund invests primarily in debt securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities. Debt
securities have varying levels of sensitivity to changes in interest rates. The
Fund will maintain a dollar-weighted average maturity of its portfolio of two to
five years.
Municipal Bond Fund seeks income not subject to Federal income taxation. This
Fund invests primarily in municipal bonds. Municipal bonds vary widely as to
their interest rates, degree of security and maturity. The Fund may invest up
to 10% of its assets in taxable obligations (as defined herein).
International Growth Fund seeks long-term appreciation as its primary goal and
realization of income as its secondary goal. The securities selected to attempt
to achieve the Fund's primary goal will be issued by companies which the Fund's
investment manager believes have the potential for long-term growth. This Fund
invests in securities issued by companies or governments of any nation. There
are certain risks associated with foreign securities not usually associated with
U.S. securities.
Asset Strategy Fund seeks high total return over the long term. This Fund
seeks to achieve this goal by allocating its assets among stocks, bonds and
short-term instruments, both in the United States and abroad. The Fund
designates a mix which represents the way the Fund's investments will generally
be allocated over the long term. This mix will vary over short-term periods as
the Fund's investment manager adjusts the Fund's holdings -- within defined
ranges -- based on the current outlook for the different markets. Because the
Fund owns different types of investments, its performance will be affected by a
variety of factors.
Science and Technology Fund seeks long-term capital growth through investment
in a portfolio emphasizing science and technology securities. This Fund invests
in common stock, preferred stock, debt securities and convertible
securities.
High Income Fund seeks, as a primary goal, a high level of current income.
As a secondary goal, the Fund seeks capital growth when consistent with its
primary goal. The Fund invests primarily in a diversified portfolio of high-
yield, high-risk, fixed-income securities, the risks of which are, in the
judgment of the Fund's investment manager, consistent with the Fund's goals.
Investments in high-yield, high-risk securities ("junk bonds") may entail risks
that are different or more pronounced than those involved in higher-rated
securities.
As with any mutual fund, there can be no assurance that a Fund will be
successful in meeting its investment goal. For a further description of the
eight Funds, their investment techniques and risks which may be associated with
certain investments, see "About the Investment Principles of the Funds."
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds. See "About the Management and Expenses of the
Funds" for further information about distribution fees.
Purchases: You may buy Class Y shares of each of the Funds through Waddell &
Reed, Inc. and its account representatives. The price to buy a Class Y share of
a Fund is the net asset value of a Class Y share of that Fund. A sales charge
is not incurred upon purchase of Class Y shares of a Fund, nor are the Class Y
shares subject to a contingent deferred sales charge. See "About Your Account"
for information on how to purchase Class Y shares of each of the Funds.
Redemptions: You may redeem your shares at net asset value. When you sell your
Class Y shares, they may be worth more or less than what you paid for them. See
"About Your Account" for a description of redemption procedures.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Funds" for information
about the risks associated with each Fund's investments.
<PAGE>
Expenses
Total Return Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees 0.25%
Other expenses 0.24%
Total Fund operating
expenses 1.20%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return39 and (2) redemption at the end of each time period:
1 year $ 12
3 years $ 38
5 years $ 66
10 years $145
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
39Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees40 0.81%
12b-1 fees 0.25%
Other expenses 0.18%
Total Fund operating
expenses 1.24%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return41 and (2) redemption at the end of each time period:
1 year $ 13
3 years $ 39
5 years $ 68
10 years $150
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
40The management fee for Growth Fund is higher than that of most funds.
41Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Limited-Term Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees 0.25%
Other expenses 0.42%
Total Fund operating
expenses 1.23%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return42 and (2) redemption at the end of each time period:
1 year $ 13
3 years $ 39
5 years $ 68
10 years $149
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
42Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Municipal Bond Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.56%
12b-1 fees 0.25%
Other expenses 0.42%
Total Fund operating
expenses 1.23%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return43 and (2) redemption at the end of each time period:
1 year $ 13
3 years $ 39
5 years $ 68
10 years $149
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
43Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
International Growth Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
`
Management fees440.81%
12b-1 fees 0.25%
Other expenses 0.55%
Total Fund operating
expenses 1.61%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return45 and (2) redemption at the end of each time period:
1 year $ 16
3 years $ 51
5 years $ 88
10 years $191
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
44The management fee for International Growth Fund is higher than that of most
funds.
45Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Asset Strategy Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than con-
tingent deferred
sales charge) None
Exchange fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees460.81%
12b-1 fees 0.25%
Other expenses 0.60%
Total Fund operating
expenses 1.66%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return47 and (2) redemption at the end of each time period:
1 year $ 17
3 years $ 52
5 years $ 90
10 years $197
The purpose of the table is to assist you in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
46The management fee for Asset Strategy Fund is higher than that of most funds.
47Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Science and Technology Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than contingent
deferred sales
charge) None
Exchange Fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.71%
12b-1 fees48 .25%
Other expenses49 %
Total Fund
operating expenses %
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return50 and (2) redemption at the end of each time period:
1 year $
3 years $
Science and Technology Fund had not commenced operations prior to March 31,
1997. The expenses are pro forma and estimated for the first fiscal year of
operations. The purpose of the table is to assist you in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses; actual expenses may be greater or lesser than those shown. For
a more complete discussion of certain expenses and fees, see "Breakdown of
Expenses."
48Expense information reflects the maximum 12b-1 fee.
49Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
50Use of assumed annual return of 5% is for illustration purposes only and not a
representation of a Fund's future performance, which may be greater or lesser.
<PAGE>
High Income Fund
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Maximum contingent deferred sales
charge None
Redemption fees
(other than contingent
deferred sales
charge) None
Exchange Fee None
Annual fund operating expenses (as a percentage of average net assets).
Management fees 0.66%
12b-1 fees51 .25%
Other expenses52 %
Total Fund
operating expenses %
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return53 and (2) redemption at the end of each time period:
1 year $
3 years $
High Income Fund had not commenced operations prior to March 31, 1997. The
expenses are pro forma and estimated for the first fiscal year of operations.
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. The
example should not be considered a representation of past or future expenses;
actual expenses may be greater or lesser than those shown. For a more complete
discussion of certain expenses and fees, see "Breakdown of Expenses."
51Expense information reflects the maximum 12b-1 fee.
52Estimated expenses for the first fiscal year of operation. Actual expenses
may be greater or lesser than those shown.
53Use of assumed annual return of 5% is for illustration purposes only and not a
representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
TOTAL RETURN FUND
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
------------- December 29, 1995*
1997 to March 31, 1996
---- -----------------
Net asset value,
beginning of
period ........... $16.38 $15.32
------ ------
Income from investment
operations:
Net investment
income........... 0.04 0.03
Net realized and
unrealized gain
on investments .. 2.04 1.03
------ ------
Total from investment
operations ....... 2.08 1.06
------ ------
Less distributions from
capital gains .... (0.11) (0.00)
------ ------
Net asset value,
end of period .... $18.35 $16.38
====== ======
Total return ....... 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $504 $87
Ratio of expenses
to average net
assets ........... 1.18% 0.96%**
Ratio of net investment
income to average
net assets ....... 0.65% 1.04%**
Portfolio turnover
rate ............. 26.23% 16.78%**
Average commission
rate paid ........ $0.0578
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
GROWTH FUND
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended march 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
-------------------- December 29, 1995*
1997 to March 31, 1996
---- ------------------
Net asset value,
beginning of
period ........... $21.04 $20.21
------ ------
Income from investment
operations:
Net investment
income........... 0.01 0.04
Net realized and
unrealized gain
on investments .. (2.13) .79
------ ------
Total from investment
operations ....... (2.12) .83
------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00)
Distributions from
capital gains ... (0.60) (0.00)
------ ------
Total distributions. (0.60) (0.00)
------ ------
Net asset value,
end of period .... $18.32 $21.04
====== ======
Total return ....... -10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $264 $1
Ratio of expenses
to average net
assets ........... 1.17% 1.17%**
Ratio of net investment
income to average
net assets ....... 0.31% 0.78%**
Portfolio turnover
rate ............. 37.20% 31.84%**
Average commission
rate paid ........ $0.0516
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
LIMITED-TERM BOND FUND
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Statements.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
-------------------- December 29, 1995*
1997 to March 31, 1996
---- ------------------
Net asset value,
beginning of
period ........... $10.00 $10.16
------ ------
Income from investment
operations:
Net investment
income........... 0.52 0.11
Net realized and
unrealized loss
on investments .. (0.09) (0.16)
------ ------
Total from investment
operations ....... 0.43 (0.05)
------ ------
Less distributions:
Dividends from net
investment income (0.52) (0.11)
Distributions from
capital gains.... (0.01) (0.00)
------ ------
Total distributions. (0.53) (0.11)
------ ------
Net asset value,
end of period .... $9.90 $10.00
====== ======
Total return ....... 4.33% -0.49%
Net assets, end of
period (000
omitted) .......... $105 $1
Ratio of expenses
to average net
assets ........... 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 5.62% 4.70%**
Portfolio turnover
rate ............. 23.05% 22.08%**
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
MUNICIPAL BOND FUND
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
-------------------- December 29, 1995*
1997 to March 31, 1996
---- ------------------
Net asset value,
beginning of
period ........... $10.63 $10.94
------ ------
Income from investment
operations:
Net investment
income........... 0.52 0.12
Net realized and
unrealized loss
on investments .. 0.11 (0.31)
------ ------
Total from investment
operations ....... 0.63 (0.19)
------ ------
Less dividends from net
investment income (0.52) (0.12)
------ ------
Net asset value,
end of period .... $10.74 $10.63
====== ======
Total return ....... 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.28% 1.18%**
Ratio of net investment
income to average
net assets ....... 4.83% 4.33%**
Portfolio turnover
rate ............. 34.72% 42.02%**
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
INTERNATIONAL GROWTH FUND*
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
------------------------ December 29, 1995*
1997 to March 31, 1996
---- ------------------
Net asset value,
beginning of
period ........... $9.95 $9.70
------ -----
Income from investment
operations:
Net investment
income........... (0.02) 0.02
Net realized and
unrealized gain
on investments .. 2.60 0.23
------ ------
Total from investment
operations ....... 2.58 0.25
------ ------
Less dividends from net
investment income (0.01) (0.00)
------ ------
Net asset value,
end of period .... $12.52 $9.95
====== ======
Total return ....... 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $227 $7
Ratio of expenses
to average net
assets ........... 1.59% 1.84%**
Ratio of net investment
income to average
net assets ....... 0.05% 1.07%**
Portfolio turnover
rate ............. 94.76% 88.55%
Average commission
rate paid ........ $0.0124
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
ASSET STRATEGY FUND
The following information has been audited in conjunction with the annual
audits of the Financial Statements of the Fund. Financial Statements for the
fiscal year ended March 31, 1997, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the fiscal For the
year ended March 31, period from
-------------------- December 29, 1995*
1997 to March 31, 1996
---- ------------------
Net asset value,
beginning of
period ........... $10.16 $10.23
------ ------
Income from investment
operations:
Net investment
income........... 0.27 0.07
Net realized and
unrealized loss
on investments .. (0.26) (0.08)
------ ------
Total from investment
operations ....... 0.01 (0.01)
------ ------
Less distributions:
Dividends from net
investment income (0.30) (0.06)
Distributions from
capital gains.... (0.14) (0.00)
------ ------
Net asset value,
end of period .... $9.73 $10.16
====== ======
Total return ....... 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $116 $1
Ratio of expenses
to average net
assets ........... 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 2.97% 2.34%**
Portfolio turnover
rate ............. 109.92% 5.02%**
Average commission
rate paid ........ $0.0375
*Commencement of operations.
**Annualized.
Science and Technology Fund and High Income Fund did not commence operations
prior to March 31, 1997.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund
over a given period, assuming reinvestment of any dividends and other
distributions. A cumulative total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same as
actual year-by-year results.
Non-standardized performance information is for periods other than those
required to be presented or differs otherwise from standardized performance
information.
Yield refers to the income generated by an investment in a Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period. Tax
equivalent yield is calculated by applying the stated income tax rate to only
the net investment income exempt from taxation, according to a standard formula.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Funds may quote their performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Funds may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that a Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of any Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in the Fund's annual and semiannual reports, which are sent to all shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of
their financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives located
throughout the United States. Your primary contact in your dealings with
Waddell & Reed will be your local account representative. However, the Waddell
& Reed shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goal(s) of each Fund are set forth below. There is no assurance that a
Fund will achieve its goal.
See "Securities and Investment Practices" for more detailed information
about the types of instruments in which the Funds may invest, strategies WRIMCO
may employ in pursuit of a Fund's goal(s) and a summary of risks associated with
these instrument types and investment practices.
Total Return Fund
The goal of Total Return Fund is to provide current income while seeking
capital growth. The Fund seeks to achieve this goal by investing primarily in
common stocks, or securities convertible into common stocks, of companies that
have a record of paying regular dividends on common stock or have the potential
for capital appreciation.
When conditions are such that stocks with high yields are less attractive
than other common stocks, Total Return Fund may hold lower yielding or non-
dividend-paying common stocks because of their prospects for capital growth. At
other times, Total Return Fund may seek to achieve its goal by investing in debt
securities when the return on these securities is attractive relative to the
return on common stocks.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Total Return Fund's assets, including, without limitation, the following:
(i) hold cash or cash equivalents (short-term investments, such as commercial
paper and certificates of deposit); (ii) invest in debt securities (including
commercial paper and securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities")); or (iii)
invest in convertible preferred stock. A defensive posture may reduce the
Fund's yield.
Growth Fund
The goal of Growth Fund is capital appreciation. The Fund seeks to achieve
this goal through a diversified holding of securities consisting primarily of
common stocks, or securities convertible into common stocks, of companies that
offer, in the opinion of WRIMCO, above-average growth potential, including
relatively new or unseasoned companies. Growth Fund is not intended for
investors who desire assured income and conservation of capital.
Growth Fund ordinarily invests in securities whose market price can be
subject to rapid and wide fluctuation. In selecting companies, WRIMCO usually
looks for such characteristics as aggressive or creative management, technology
or specialized expertise, new or unique products or services, entry into new or
emerging industries and special situations arising out of governmental
priorities and programs. During normal market conditions, the Fund will have at
least 65% of its assets invested in growth securities.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Growth Fund's assets, including, without limitation, the following: (i) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (ii) invest in debt securities (including commercial
paper or short-term U.S. Government Securities); or (iii) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
Limited-Term Bond Fund
The goal of Limited-Term Bond Fund is to provide a high level of current
income consistent with preservation of capital. The Fund seeks to achieve this
goal by investing primarily in debt securities of investment grade, including
U.S. Government Securities.
"Limited-Term" means that the Fund will maintain a dollar-weighted
average maturity of its portfolio of not less than two years and not more than
five years. The maturity of collateralized mortgage obligations ("CMOs") and
other asset-backed securities will be deemed to be the estimated average life of
such securities, as determined in accordance with certain prescribed models or
formulas, such as those provided by the Public Securities Association. The
maturity of other debt securities will be deemed to be the earlier of the call
date or the maturity date, whichever is appropriate.
Among the U.S. Government Securities that Limited-Term Bond Fund may
purchase are mortgage-backed securities of the Government National Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage Corporation ("Freddie
Mac") and Fannie Mae (formerly, the Federal National Mortgage Association).
These mortgage-backed securities include pass-through securities, participation
certificates and collateralized mortgage obligations. The Fund will invest in
U.S. Government Securities not backed by the full faith and credit of the United
States only when WRIMCO is satisfied the credit risk is acceptable. The debt
securities, other than U.S. Government Securities, in which Limited-Term Bond
Fund invests include, without limitation, corporate bonds, medium-term notes,
asset-backed securities (such as mortgage-backed securities) and other financial
obligations that are commonly considered debt, all of which securities will be
denominated in U.S. dollars.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Limited-Term Bond Fund's assets, including, without limitation, the
following: (i) shorten the average maturity of the Fund's portfolio; (ii) hold
cash or cash equivalents (short-term investments, such as commercial paper and
certificates of deposit); (iii) emphasize debt securities of a higher quality
than those the Fund would ordinarily hold; or (iv) invest in convertible
preferred stock. A defensive posture may reduce the Fund's yield.
Municipal Bond Fund
The goal of Municipal Bond Fund is to provide income that is not subject to
Federal income taxation. The Fund seeks to achieve this goal by investing
primarily in municipal bonds.
As used in this Prospectus, "municipal bonds" means obligations the
interest on which is not includable in gross income for Federal income tax
purposes. See "Distributions and Taxes" for information concerning the
alternative minimum tax. Municipal Bond Fund and WRIMCO rely on the opinion of
bond counsel for the issuer in determining whether obligations are municipal
bonds.
The types of municipal bonds in which Municipal Bond Fund may invest
include "general obligation" bonds, "revenue" bonds and certain "industrial
development" bonds. Municipal obligations in which the Fund may invest also
include municipal lease obligations of municipal authorities or entities and
participations in these obligations. Municipal bonds vary as to their interest
rates, degree of security and maturity. The bonds purchased by Municipal Bond
Fund are selected primarily on the basis of quality, yield and diversification.
The only taxable obligations that Municipal Bond Fund may purchase are
(i) U.S. Government Securities, (ii) bank obligations of domestic banks or
savings and loan associations that are subject to regulation by the U.S.
Government (including, without limitation, certificates of deposit, letters of
credit and acceptances), and (iii) commercial paper rated at least A by a
recognized statistical rating organization. Municipal Bond Fund may also
acquire these taxable obligations subject to repurchase agreements.
The ability of the governments, agencies, companies or others to pay
principal and interest on debt securities held by Municipal Bond Fund may
change. Such changes, actual or expected, may also affect the value of these
debt securities, and in turn the value of Municipal Bond Fund's shares.
Dividends paid by Municipal Bond Fund that are derived from income from taxable
obligations, options and futures contracts and other derivative instruments in
which it may invest are subject to Federal income tax. See "Distributions and
Taxes."
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of securities
in the Fund's portfolio, WRIMCO may take certain steps with respect to up to all
of Municipal Bond Fund's assets, including, without limitation, the following:
(i) shorten the average maturity of the Fund's portfolio; (ii) hold cash or cash
equivalents (short-term investments, such as commercial paper and certificates
of deposit); (iii) hold taxable obligations, subject to the limitations stated
above; or (iv) emphasize debt securities of a higher quality or higher coupon
than those the Fund would ordinarily hold. A defensive posture may reduce the
Fund's yield.
International Growth Fund
The primary goal of International Growth Fund is the long-term appreciation
of your investment. Realization of income is a secondary goal. The Fund seeks
to achieve these goals by investing in securities issued by companies or
governments of any nation. The securities WRIMCO selects to attempt to achieve
the Fund's primary goal will be issued by companies that WRIMCO believes have
the potential for long-term growth.
There are three main kinds of securities that International Growth Fund
will own: common stocks, preferred stocks and debt securities. During normal
market conditions, the Fund will have at least 80% of its assets invested in
foreign securities and at least 65% of its assets invested in growth securities.
The securities that the Fund purchases because they may increase in value over
the long term will usually be common stocks or securities that may be converted
into common stocks or rights for the purchase of common stocks. All or a
substantial amount of International Growth Fund's assets may be invested in
foreign securities if, in WRIMCO's opinion, doing so might assist in achieving
the Fund's goals.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, when WRIMCO believes that a full or partial defensive
position is temporarily desirable due to present or anticipated market or
economic conditions that are affecting or could affect the value of the
securities in the Fund's portfolio, WRIMCO may take certain steps with respect
to up to all of International Growth Fund's assets, including, without
limitation, the following: (i) invest in either debt securities (including
commercial paper or U.S. Government Securities) or preferred stocks or both; or
(ii) invest completely or substantially in U.S. securities. A defensive posture
may reduce the Fund's yield.
Asset Strategy Fund
The goal of Asset Strategy Fund is high total return over the long term.
The Fund seeks to achieve this goal by allocating its assets among stocks, bonds
and short-term instruments.
Allocating assets among different types of investments allows Asset
Strategy Fund to take advantage of opportunities wherever they may occur, but
also subjects the Fund to the risks of a given investment type. Stock values
generally fluctuate in response to the activities of individual companies and
general market and economic conditions. The value of bonds and short-term
instruments generally fluctuates based on changes in interest rates and in the
credit quality of the issuer.
WRIMCO regularly reviews Asset Strategy Fund's allocation of assets and
makes changes to favor investments that it believes provide the most favorable
outlook for achieving the Fund's goal. Although WRIMCO uses its expertise and
resources in choosing investments and in allocating assets, WRIMCO's decisions
may not always be advantageous to the Fund.
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments. The stock class includes equity securities of all types.
The bond class includes all varieties of fixed-income instruments with
maturities of more than three years (including adjustable-rate preferred
stocks). The short-term class includes all types of short-term instruments with
remaining maturities of three years or less. Within each of these classes,
Asset Strategy Fund may invest in both domestic and foreign securities.
WRIMCO has the ability to allocate Asset Strategy Fund's assets within
specified ranges. Asset Strategy Fund's mix indicates the benchmark for its
combination of investments in each class over time. WRIMCO may change the mix
within the specified ranges from time to time. The range and approximate
percentage of the mix for each asset class are shown below. Some types of
investments, such as indexed securities, can fall into more than one asset
class.
Mix Range
- --------- ------
Stock
class 0-100%
70%
Bond
class 0-100%
25%
Short-term
class 0-100%
5%
WRIMCO seeks to balance the investment risks undertaken by Asset
Strategy Fund against the higher total returns that may be available by reducing
exposure to the stock market during down cycles and allowing a higher allocation
in the stock class during periods of strongly positive market performance. The
Fund has the ability to take a more defensive posture by increasing its holdings
in the bond or short-term class when WRIMCO believes that there exists a
potential bear market, prolonged downturn in stock prices or significant loss in
value. In pursuit of Asset Strategy Fund's goal, WRIMCO will not try to
pinpoint the precise moment when a major reallocation should be made. Asset
shifts among classes may be made gradually over time.
WRIMCO normally invests the Fund's assets according to its investment
strategy; however, as a temporary defensive measure at times when WRIMCO
believes that a mix of stocks, bonds and certain short-term instruments does not
offer a good investment opportunity, it may temporarily invest up to all of
Asset Strategy Fund's assets in (i) money market instruments rated A-1 by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), or
Prime 1 by Moody's Investors Service, Inc. ("MIS"), or unrated securities judged
by WRIMCO to be of equivalent quality, or (ii) bullion. S&P and MIS ratings are
described in Appendix A to the SAI. A defensive posture may reduce the Fund's
yield.
Asset Strategy Fund diversifies across investment types more than most
mutual funds. No one mutual fund, however, can provide an appropriate balanced
investment plan for all investors.
Science and Technology Fund
The goal of Science and Technology Fund is long-term capital growth. The
Fund seeks to achieve this goal by concentrating its investments in science and
technology securities. Science and technology securities are securities of
companies whose products, processes or services, in WRIMCO's opinion, are being
or are expected to be significantly benefited by the utilization or commercial
application of scientific or technological discoveries or developments in such
areas as aerospace, communications and electronic equipment, computer systems,
computer software and services, electronics, electronic media, business
machines, office equipment and supplies, biotechnology, medical and hospital
supplies and services, medical devices and drugs. Certain risks are associated
with science and technology securities, including the impact of governmental
regulation and rapid obsolescence of issuers' products or processes.
Under normal economic and market conditions, Science and Technology Fund
will not invest in any securities other than science securities or technology
securities if, after such investment, more than 20% of its total assets would be
invested in such other securities. The Fund may own common stock, preferred
stock, debt securities and convertible securities. At times, as a temporary
defensive measure, the Fund may invest up to all of its assets in U.S.
Government Securities or other debt securities.
High Income Fund
The primary goal of High Income Fund is high current income; as a secondary
goal, it seeks capital growth when consistent with the primary goal. The Fund
attempts to achieve these goals by investing primarily in a diversified
portfolio of high-yield, high-risk, fixed-income securities. These include
corporate bonds and notes, convertible securities and preferred stocks that are
rated in the lower rating categories of the established rating services (Baa or
lower by MIS or BBB or lower by S&P), or are unrated securities that are, in the
opinion of WRIMCO, of similar quality to rated securities in these categories.
Under normal market conditions, at least 65% of the value of the Fund's
total assets will be invested to seek a high level of current income, which
securities may include high-yield, high-risk securities. A portion of the
Fund's assets may be invested in common stocks; however, the Fund will not
purchase any common stocks if, after such purchase, more than 20% of the value
of its total assets would be invested in common stocks. This 20% limit includes
common stocks acquired on conversion of convertible securities, on exercise of
warrants or call options or in any other voluntary manner. The Fund will invest
in common stocks in order to attempt to achieve either a combination of its
primary and secondary goals, in which case the common stocks will be dividend-
paying, or to achieve its secondary goal, in which case the common stocks may
not pay dividends. The Fund does not anticipate investing more than 4% of its
total assets in non-dividend-paying common stocks.
When WRIMCO believes that a full or partial temporary defensive position is
desirable, due to present or anticipated market or economic conditions, WRIMCO
may take any one or more of the following steps with respect to up to all of the
assets in the Fund's portfolio: (i) shortening the average maturity of the
Fund's debt portfolio; (ii) holding cash or cash equivalents (short-term
investments, such as commercial paper and certificates of deposit); and (iii)
emphasizing higher-rated debt securities if WRIMCO believes that the risk of
loss of income and principal may be reduced with a relatively small reduction in
yield. A defensive posture may reduce the Fund's yield. As an alternative to
taking a temporary defensive position or in order to more quickly participate in
anticipated market changes or market conditions, the Fund may invest in options
and futures.
Risk Considerations
There are risks inherent in any investment. Each Fund is subject to
varying degrees of market risk, financial risk, and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risk, you should
anticipate that the share price of each Fund will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of each Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Because each Fund owns different types of investments, its performance will
be affected by a variety of factors. The value of a Fund's investments and the
income it generates will vary from day to day, generally reflecting changes in
interest rates, market conditions, and other company and economic news. With
respect to Asset Strategy Fund, performance will also depend on WRIMCO's skill
in allocating assets.
The Funds may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward contracts,
swaps, caps, collars, floors, indexed securities, stripped securities and
mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest, and strategies WRIMCO may employ in
pursuit of the Funds' goals. A summary of risks associated with these
instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by a Fund's investment policies and
restrictions unless it believes that doing so will help that Fund achieve its
goal.
Certain of the investment policies and restrictions of each Fund are
also stated below. A fundamental policy of a Fund may not be changed without
the approval of the shareholders of that Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal(s) of each Fund are fundamental policies. Unless
otherwise indicated, the types of securities and other assets in which a Fund
may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund (other than Municipal Bond
Fund) invests may include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer.
Policies and Restrictions: High Income Fund will not purchase any
common stocks if, after such purchase, more than 20% of the value of its total
assets would be invested in common stocks.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which a
Fund (other than Municipal Bond Fund) invests may include debt securities whose
performance is linked to a specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
A Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
bonds are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon bonds do not pay current income, their prices can be very
volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue a
ratable portion of the OID on the security as income each year, even though the
holder may receive no interest payment on the security during the year.
Accordingly, although a Fund will receive no payments on its zero coupon bonds
prior to their maturity or disposition, it will have current income attributable
to those securities. Nevertheless, for income and excise tax purposes each Fund
annually must distribute to its shareholders substantially all of its net
investment income, including OID. Accordingly, each Fund will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon and other OID bonds. See "Taxes" in the SAI. Those dividends will be
paid from a Fund's cash assets or by liquidation of portfolio securities, if
necessary, at a time when the Fund otherwise might not have done so.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly-traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by a
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in a Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. A Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by S&P and C by MIS). In addition, Asset Strategy Fund and High Income Fund
will treat unrated securities judged by WRIMCO to be of equivalent quality to a
rated security to be equivalent to securities having that rating. Debt
securities rated at least BBB by S&P or Baa by MIS are considered to be
investment grade debt securities. Securities rated BBB or Baa may have
speculative characteristics. Debt securities rated D by S&P or C by MIS are in
payment default or are regarded as having extremely poor prospects of ever
attaining any real investment standing. While credit ratings are only one
factor WRIMCO relies on in evaluating high-yield debt securities, certain risks
are associated with credit ratings. Credit ratings evaluate the safety of
principal and interest payments, not market value risk. Credit ratings for
individual securities may change from time to time, and a Fund may retain a
portfolio security whose rating has been changed.
Municipal bonds are issued by a wide range of governments, agencies and
authorities for various purposes. The two main kinds of municipal bonds are
"general obligation" bonds and "revenue" bonds. In "general obligation" bonds,
the issuer has pledged its full faith, credit and taxing power for the payment
of principal and interest. "Revenue" bonds are payable only from specific
sources; these may include revenues from a particular facility or class of
facilities or special tax or other revenue source.
Industrial development bonds are revenue bonds issued by or on behalf of
public authorities to obtain funds to finance privately-operated facilities.
Their credit quality is generally dependent on the credit standing of the
company involved.
Other municipal obligations include municipal lease obligations of
municipal authorities or entities and participations in these obligations
(collectively, "lease obligations"). WRIMCO determines liquidity of lease
obligations in accordance with guidelines established by the Corporation's Board
of Directors. Unrated municipal lease obligations will be considered to be
illiquid. In determining the credit quality of unrated municipal lease
obligations, one of the factors, among others, to be considered will be the
likelihood that the lease will not be canceled. Certain "non-appropriation"
lease obligations may present special risks because the municipality's
obligation to make future lease or installment payments depends on money being
appropriated each year for this purpose.
Municipal bonds vary widely as to their interest rates, degree of security
and maturity. Bonds are selected on the basis of quality, yield and
diversification. Factors that affect the yield on municipal bonds include
general money market conditions, municipal bond market conditions, the size of a
particular offering, the maturity of the obligation and the nature of the issue.
Lower-rated bonds usually, but not always, have higher yields than similar but
higher rated bonds.
Policies and Restrictions: As a fundamental policy, at least 80% of
Municipal Bond Fund's net assets will be invested during normal market
conditions in municipal bonds.
At least 80% of Municipal Bond Fund's assets will consist of municipal
bonds of investment grade.
Municipal Bond Fund does not intend to invest more than 50% of its
assets in industrial development bonds.
Debt Holdings, by Ratings. During the fiscal year ended March 31, 1997,
the percentage of the assets of Asset Strategy Fund invested in debt securities
in each of the rating categories of S&P and the corporate debt securities not
rated by an established rating service, determined on a dollar-weighted average,
were as follows:
Percentage of
Rated Assets of Asset
by S&P Strategy Fund
- ------ ----------------
AAA 23.9%
AA 4.9
A 17.2
BBB 1.4
BB 6.6
B 3.3
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated 2.4
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in Asset Strategy Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A to
the SAI. The Funds (other than Municipal Bond Fund) may invest in preferred
stock rated in any rating category by an established rating service and unrated
preferred stock judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: At least 65% of the total assets of Limited-
Term Bond Fund will be invested during normal market conditions in bonds.
At least 65% of the total assets of Municipal Bond Fund will be invested
during normal market conditions in bonds exclusive of other municipal debt
obligations. Up to 10% of Municipal Bond Fund's assets may be invested in debt
securities other than municipal bonds ("taxable obligations").
High Income Fund may invest in debt securities rated in any category by
the established rating services or determined by WRIMCO to be of equivalent
quality. At least 65% of the total assets of High Income Fund will be invested
during normal market conditions to seek a high level of current income.
Limited-Term Bond Fund does not intend to invest more than 50% of its
assets in securities rated in the lowest tier of investment grade debt
securities (those rated BBB by S&P or Baa by MIS).
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund and Science and Technology Fund may not invest
in non-investment grade debt securities if as a result of such investment more
than 5% of that Fund's assets would consist of such investments.
Asset Strategy Fund may not invest more than 35% of its assets in lower-
quality debt securities (those rated below BBB by S&P or Baa by MIS and unrated
securities judged by WRIMCO to be of equivalent quality). However, Asset
Strategy Fund does not currently intend to invest more than 20% of its total
assets in securities rated below investment-grade or judged by WRIMCO to be of
equivalent quality.
Money Market Instruments are high-quality, short-term debt instruments that
present minimal credit risk. They may include U.S. Government Securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit, bankers' acceptances, bank deposits, and other financial institution
obligations. These instruments may carry fixed or variable interest rates.
Policies and Restrictions: Asset Strategy Fund does not currently
intend to invest in money-market instruments rated below the highest rating
category by S&P or MIS, or judged by WRIMCO to be of equivalent quality;
provided, however, that the Fund may invest in money-market instruments rated
below the highest rating category by S&P or MIS if such instrument is subject to
a letter of credit or similar unconditional credit enhancement which is rated A-
1 by S&P or Prime 1 by MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that WRIMCO will be able to
anticipate these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries, and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: Subject to the limitations set forth below,
International Growth Fund, Total Return Fund and Growth Fund may purchase
foreign securities only if they are (i) listed or admitted to trading on a
domestic or foreign securities exchange or quoted on an automated quotations
system, with the exception of warrants, rights or restricted securities, which
need not be so listed or admitted, or (ii) represented by American Depositary
Receipts (receipts issued against securities of foreign issuers deposited or to
be deposited with an American depository) so listed or admitted on a domestic
securities exchange or traded in the U.S. over-the-counter ("OTC") market, or
(iii) issued or guaranteed by any foreign government or any subdivision, agency
or instrumentality thereof.
Normally at least 80% of International Growth Fund's assets will be
invested in foreign securities. Under normal market conditions, International
Growth Fund will have at least 65% of its assets invested in at least three
different countries outside the United States. International Growth Fund may
not purchase a foreign security if as a result more than 75% of its assets would
be invested in securities of any one foreign country. International Growth Fund
will not invest more than 25% of its total assets in the securities issued by
the government of any one foreign country.
Under normal market conditions, Asset Strategy Fund intends to limit its
investments in foreign securities to no more than 50% of total assets. Asset
Strategy Fund currently intends to limit its investments in obligations of any
single foreign government to less than 25% of its total assets.
Total Return Fund and Growth Fund may invest up to 10% of their
respective assets in foreign securities.
Science and Technology Fund may not invest more than 20% of its net assets
in foreign securities. High Income Fund may purchase an unlimited amount of
foreign securities. High Income Fund will not invest more than 25% of its total
assets in securities issued by the government of any one foreign country.
Limited-Term Bond Fund and Municipal Bond Fund may not invest in foreign
securities.
Options, Futures and Other Strategies. A Fund may use certain options,
futures contracts, forward currency contracts, swaps, caps, collars, floors,
indexed securities, mortgage-backed and other asset-backed securities and
certain other strategies described herein to attempt to enhance income or yield
or to attempt to reduce the risk of its investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value. A Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally a Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options, forward
contracts, swaps, caps, collars and floors and (except for Municipal Bond Fund)
indexed securities). However, a Fund will only purchase or sell a particular
derivative instrument if the Fund is authorized to invest in the type of asset
by which the return on, or value of, the derivative instrument is primarily
measured or, with respect to foreign currency derivatives, if the Fund is
authorized to invest in foreign securities.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the offsetting put or call. If a Fund is not able to enter into an
offsetting closing transaction on an option it has written, it will be required
to maintain the securities, or cash in the case of an option on an index,
subject to the call or the collateral underlying the put until a closing
purchase transaction can be entered into or the option expires. Because index
options are settled in cash, a Fund cannot provide in advance for its potential
settlement obligations on a call it has written on an index by holding the
underlying securities. The Fund bears the risk that the value of the securities
it holds will vary from the value of the index.
Futures Contracts and Options on Futures Contracts. When a Fund
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified time
in the future for a specified price. When a Fund sells a futures contract, it
incurs an obligation to deliver the specified amount of the underlying
obligation at a specified time in return for an agreed-upon price.
When a Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If a Fund writes a call, it assumes a short futures position. If it
writes a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires the right, in return for the premium
it pays, to assume a position in the futures contract (a long position if the
option is a call and a short position if the option is a put).
Forward Contracts and Foreign Currencies. Each Fund (other than Limited-
Term Bond Fund and Municipal Bond Fund) may enter into forward currency
contracts for the purchase or sale of a specified currency at a specified future
date either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Fund from adverse changes in the
relationship between the U.S. dollar and a foreign currency. For example, when
WRIMCO anticipates purchasing or selling a security denominated in a foreign
currency, a Fund may enter into a forward contract in order to set the exchange
rate at which the transaction will be made. A Fund also may enter into a
forward contract to sell an amount of a foreign currency approximating the value
of some or all of the Fund's securities positions denominated in such currency.
Each of these Funds may also use forward contracts in one currency or a basket
of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if WRIMCO anticipates that there
will be a correlation between the two currencies.
Each of these Funds may also use forward currency contracts to shift the
Fund's exposure to foreign currency exchange rate changes from one foreign
currency to another. For example, if a Fund owns securities denominated in a
foreign currency and WRIMCO believes that currency will decline relative to
another currency, it might enter into a forward contract to sell the appropriate
amount of the first foreign currency with payment to be made in the second
foreign currency. Transactions that use two foreign currencies are sometimes
referred to as "cross hedging." Use of a different foreign currency magnifies
the Fund's exposure to foreign currency exchange rate fluctuations. Each of
these Funds may also purchase forward currency contracts to enhance income when
WRIMCO anticipates that the foreign currency will appreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to a Fund or that it will hedge at an appropriate
time.
Each Fund (other than Limited-Term Bond Fund and Municipal Bond Fund) may
also purchase and sell foreign currency and invest in foreign currency deposits.
Currency conversion involves dealer spreads and other costs, although
commissions usually are not charged.
Indexed Securities. Each Fund (other than Municipal Bond Fund) may
purchase indexed securities, which are securities the value of which varies in
relation to the value of other securities, securities indices, currencies,
precious metals or other commodities, or other financial indicators, subject to
its operating policy regarding derivative instruments. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instruments.
Swaps, Caps, Collars and Floors. A Fund may enter into swaps, caps,
collars and floors as described below. A Fund may enter into these transactions
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against any increase in the price of securities a Fund
anticipates purchasing at a later date or to attempt to enhance income or yield.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor
agreements used by a Fund may also increase or decrease the overall volatility
of its investments and its share price and yield. The most significant factor
in the performance of these agreements is the change in the specific interest
rate, currency or other factors that determine the amounts of payments due to
and from the Fund.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association, the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting a Fund's yield. Actual prepayment experience may cause the
yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Policies and Restrictions: Each Fund may invest in mortgage-backed, asset-
backed and stripped securities as long as WRIMCO determines that it is
consistent with the Fund's goal(s) and investment policies.
Municipal Bond Fund may only purchase mortgage-backed securities issued by
government entities.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities, involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by a Fund on options it purchases, and (viii) the possible inability of a Fund
to purchase or sell a portfolio security at a time when it would otherwise be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with such transactions and the
possible inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of a Fund's portfolio diverges from instruments underlying a hedging
instrument. Such equal price changes are not always possible because the
investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of a Fund's portfolio of investments and may use these
instruments to adjust the return characteristics of a Fund's portfolio of
investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with a Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that a Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate or stock market movements
or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transaction
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. Each Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund sells a security on a delayed-delivery basis, a Fund
does not participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity, or
could suffer a loss.
Policies and Restrictions: Only International Growth Fund, Limited-Term
Bond Fund, Municipal Bond Fund, Asset Strategy Fund, Science and Technology Fund
and High Income Fund may purchase securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis.
Asset Strategy Fund, Municipal Bond Fund and Limited-Term Bond Fund do not
currently intend to invest more than 5% of their respective total assets in
when-issued and delayed-delivery transactions.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: International Growth Fund may purchase
restricted foreign securities, provided that, after such purchase, not more than
5% of its total assets consist of restricted securities. Total Return Fund,
Limited-Term Bond Fund, International Growth Fund and Science and Technology
Fund do not intend to invest in restricted securities.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, Science and Technology Fund and High Income
Fund each may not invest more than 10% of its net assets in illiquid
investments.
Asset Strategy Fund may not purchase a security if, as a result, more than
15% of its net assets would be invested in illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, no Fund may invest in
a security if, as a result, it would own more than 10% of the outstanding voting
securities of an issuer, or if more than 5% of the Fund's total assets would be
invested in securities of that issuer, provided that U.S. Government Securities
are not subject to this limitation and up to 25% of the Fund's total assets may
be invested without regard to these restrictions.
As a fundamental policy, no Fund, other than Science and Technology
Fund, may buy a security if, as a result, 25% or more of the Fund's total assets
would then be invested in securities of issuers having their principal business
activities in the same industry, except for municipal bonds (other than
industrial development bonds) and U.S. Government Securities.
Municipal Bond Fund will have less than 25% of its assets in securities of
issuers located in any single state.
Borrowing. If a Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be considered a form of
leverage.
Policies and Restrictions: As a fundamental policy, Total Return Fund,
Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund, International Growth
Fund, Science and Technology Fund and High Income Fund may borrow money from
banks for temporary, extraordinary or emergency purposes but only up to 5% of
their respective assets. Borrowing for temporary measures may include borrowing
to cover redemptions or settlements of securities transactions.
Asset Strategy Fund may borrow from banks. As a fundamental policy, Asset
Strategy Fund may borrow only for emergency or extraordinary purposes, but not
in an amount exceeding 33 1/3% of its total assets.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: No more than 10% of the respective assets of
Total Return Fund, Growth Fund, International Growth Fund, Science and
Technology Fund or High Income Fund or 30% of the assets of Limited-Term Bond
Fund, may be loaned at any one time. As a fundamental policy, Asset Strategy
Fund may not lend more than 10% of its total assets at one time. As a
fundamental policy, Municipal Bond Fund may not lend its securities.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, a Fund would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, Municipal Bond Fund
may not purchase warrants.
No Fund (other than Growth Fund and Science and Technology Fund) may invest
more than 5% of its assets taken at market value at the time of investment in
companies, including predecessors, with less than three years continuous
operation. This restriction does not apply to U.S. Government Securities or
obligations issued or guaranteed by a state or local government authority, or
its agencies or instrumentalities, or to CMOs, other mortgage-related
securities, asset-backed securities, indexed securities or over-the-counter
derivative financial instruments.
As a fundamental policy, Total Return Fund, Growth Fund, International
Growth Fund, Science and Technology Fund and High Income Fund may buy shares of
other investment companies that do not redeem their shares only if they do so in
a regular transaction in the open market and in compliance with the requirements
of the Investment Company Act of 1940, as amended (the "1940 Act"). Each of
these Funds may purchase such securities if, as a result of such purchase, no
more than 10% of its total assets are invested in such securities. Science and
Technology Fund and High Income Fund do not currently intend to invest more than
5% of their respective assets in the shares of other investment companies.
Asset Strategy Fund does not currently intend to purchase securities of other
investment companies that do not redeem their shares except in the open market
where no commission except the ordinary broker's commission is paid and if, as a
result of such purchase, not more than 10% of its total assets are invested in
such securities.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
_ participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Code, when an unaffiliated third party provides certain administrative,
distribution, and/or other support services to the plan and the plan holds
the shares in an omnibus account on the Fund's records;
_ banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records and to which entity an unaffiliated third party
provides certain administrative, distribution and/or other support services;
and
_ government entities or authorities and corporations and to which entity an
unaffiliated third party provides certain administrative, distribution and/or
other support services where the investment is $1 million.
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and
its account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of a Fund, called net asset value ("NAV"), is
calculated every business day. The Funds' Class Y shares are sold without a
sales charge.
To purchase by wire, you must first obtain an account number by calling 1-
800-366-2520, then mail a completed application to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
A Fund's Class Y NAV is the value of a single Class Y share of that Fund.
A Fund's Class Y NAV is computed by adding, with respect to that class, the
value of that Fund's investments, cash and other assets, subtracting its
liabilities, and then dividing the result by the number of Class Y shares
outstanding.
The securities in a Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices provided by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
assets are valued at their fair value by or at the direction of the Board of
Directors.
The Funds are open for business each day the New York Stock Exchange (the
"NYSE") is open. Each Fund normally calculates its net asset value as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or future held by the Fund is traded.
Certain of the Funds may invest in securities listed on foreign exchanges
which may trade on Saturdays or on customary U.S. national business holidays
when the NYSE is closed. Consequently, the NAV of such Fund shares may be
significantly affected on days when the Funds do not price their shares and when
you have no access to the Funds.
When you place an order to buy shares, your order will be processed at the
next NAV calculated after your order is received and accepted. Note the
following:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund, the payment may be delayed for up to ten
days to ensure that your previous investment has cleared.
. The Funds do not issue certificates representing Class Y shares of a Fund.
When you sign your account application, you will be asked to certify
that your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Corporation reserve the right to
discontinue offering shares of the Funds for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation:
$10 million
(within
first
twelve
months)
For other
investors: Any amount
Adding to Your Account
You may make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell &
Reed, Inc. Mail the check along with a letter stating your account number, the
account registration, and that you wish to purchase Class Y shares of the Fund
to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission,
Kansas 66201-9217
Selling Shares
You can arrange to take money out of your account at any time by selling
(redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
. the name on the account registration;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be redeemed; and
. any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
. If more than one person owns the shares, each owner must sign the written
request.
. If you recently purchased the shares by check, the Corporation may delay
payment of redemption proceeds. You may arrange for the bank upon which the
purchase check was drawn to provide to the Corporation telephone or written
assurance, satisfactory to the Corporation, that the check has cleared and
been honored. If no such assurance is given, payment of the redemption
proceeds on these shares will be delayed until the earlier of 10 days or the
date the Corporation is able to verify that your purchase check has cleared
and been honored.
. Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Corporation reserves the right to require a signature guarantee on
certain redemption requests. This requirement is designed to protect you and
Waddell & Reed from fraud. The Corporation may require a signature guarantee in
certain situations, such as:
. the request for redemption is made by a corporation, partnership or
fiduciary;
. the request for redemption is made by someone other than the owner of record;
or
. the check is being made payable to someone other than the owner of record.
The Corporation will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the
Corporation's transfer agent. A notary public cannot provide a signature
guarantee.
The Corporation reserves the right to redeem at NAV all Class Y shares of a
Fund owned or held by you having an aggregate NAV of less than $500. The
Corporation will give you notice of its intention to redeem your shares and a
60-day opportunity to purchase a sufficient number of additional shares to bring
the aggregate NAV of your shares of that Fund to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, exchange, transfer or
redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
To reduce expenses, only one copy of most annual and semiannual reports
will be mailed to your household, even if you have more than one account with
the Funds. Call the telephone number listed on the inside back cover if you
need copies of annual or semiannual reports or historical account
information.
Exchanges
You may sell your Class Y shares of any of the Funds and buy Class Y shares
of another Fund.
Exchanges may only be made into Funds which are legally registered for sale
in the state of residence of the investor. Note that exchanges out of the Funds
may have tax consequences for you. Before exchanging into a Fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, at the following times: Total Return Fund, Growth Fund, International
Growth Fund and Science and Technology Fund, annually in December; Asset
Strategy Fund, quarterly in March, June, September and December; and Limited-
Term Bond Fund, Municipal Bond Fund and High Income Fund, declared daily and
paid monthly. Net capital gains (and any net gains from foreign currency
transactions) ordinarily are distributed in December. Each Fund may make
additional distributions if necessary to avoid Federal income or excise taxes on
certain undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains and other
distributions will be automatically paid in additional Class Y shares of the
distributing Fund. If you do not indicate a choice on your application, you
will be assigned this option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in additional Class Y shares of the distributing Fund,
but you will be sent a check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
and other distributions.
For retirement accounts, all distributions are automatically paid in
additional Class Y shares of the distributing Fund.
Taxes
Science and Technology Fund and High Income Fund intend, and each of the
other Funds intends to continue, to qualify for treatment as a regulated
investment company under the Code, so that it will be relieved of Federal income
tax on that part of its investment company taxable income (consisting generally
of net investment income, net short-term capital gains and net gains from
certain foreign currency transactions) and net capital gains (the excess of net
long-term capital gains over net short-term capital losses) that are distributed
to its shareholders. In addition, Municipal Bond Fund intends to continue to
qualify to pay "exempt-interest" dividends, which requires, among other things,
that at the close of each calendar quarter at least 50% of the value of its
total assets must consist of obligations the interest on which is excludable
from gross income under section 103(a) of the Code.
There are certain tax requirements that the Funds must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, a Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund
will be taxed. If your account is not a tax-deferred retirement account (or you
are not otherwise exempt from income tax), you should be aware of the following
tax implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income, whether received in cash
or paid in additional Fund shares. Distributions by Municipal Bond Fund that
are designated by it as exempt-interest dividends generally may be excluded by
you from your gross income. Distributions of a Fund's realized net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or paid in additional Fund shares and regardless of the
length of time you have owned your shares. Each Fund notifies you after each
calendar year-end as to the amounts of dividends and other distributions paid
(or deemed paid) to you for that year.
A portion of the dividends paid by Total Return Fund, Growth Fund, Asset
Strategy Fund, International Growth Fund and/or Science and Technology Fund,
whether received in cash or paid in additional Fund shares, may be eligible for
the dividends-received deduction allowed to corporations. The eligible portion
may not exceed the aggregate dividends received by the Fund from U.S.
corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax ("AMT"). No part of the dividends
paid by Limited-Term Bond Fund, Municipal Bond Fund and High Income Fund is
expected to be eligible for this deduction.
Exempt-interest dividends paid by Municipal Bond Fund may be subject to
income taxation under state and local tax laws. In addition, a portion of those
dividends is expected to be attributable to interest on certain bonds that must
be treated by you as a "tax preference item" for purposes of calculating your
liability, if any, for the AMT; that Fund anticipates such portion will be not
more than 40% of the dividends it will pay to its shareholders. Municipal Bond
Fund will provide you with information concerning the amount of distributions
subject to the AMT after the end of each calendar year. Shareholders who may be
subject to the AMT should consult with their tax advisers concerning investment
in that Fund.
Entities or other persons who are "substantial users" (or persons related
to "substantial users") of facilities financed by private activity bonds
("PABs") should consult their tax advisers before purchasing Fund shares
because, for users of certain of these facilities, the interest on PABs is not
exempt from Federal income tax. For these purposes, the term "substantial user"
is defined generally to include a "non-exempt person" who regularly uses in
trade or business a part of a facility financed from the proceeds of PABs.
Withholding. Each Fund is required to withhold 31% of all taxable
dividends, capital gains distributions and redemption proceeds payable to
individuals and certain other noncorporate shareholders who do not furnish the
Fund with a correct taxpayer identification number. Withholding at that rate
from taxable dividends and capital gains distributions also is required for such
shareholders who otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares. An exchange of
shares of one Fund for shares of any other Fund generally will have similar tax
consequences. In addition, if you purchase shares of a Fund within thirty days
before or after redeeming other shares of that Fund (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
Interest on indebtedness incurred or continued to purchase or carry shares
of Municipal Bond Fund will not be deductible for Federal income tax purposes to
the extent that Fund's distributions consist of exempt-interest dividends.
Proposals may be introduced before Congress for the purpose of restricting or
eliminating the Federal income tax exemption for interest on municipal bonds.
If such a proposal were enacted, the availability of municipal bonds for
investment by that Fund and the value of its portfolio would be affected. In
that event, that Fund may decide to reevaluate its investment goal and policies.
State income taxes. The portion of the dividends paid by Limited-Term
Bond Fund (and, to a lesser extent, the other Funds) attributable to the
interest earned on its U.S. Government Securities generally are not subject to
state and local income taxes, although distributions by any Fund to its
shareholders of net realized gains on the disposition of those securities are
fully subject to those taxes. You should consult your tax adviser to determine
the taxability of dividends and other distributions by the Funds in your state
and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Funds and their shareholders. There may
be other Federal, state or local tax considerations applicable to a particular
investor. You are urged to consult your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
Waddell & Reed Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
Waddell & Reed Funds, Inc. is an open-end, diversified management investment
company organized as a corporation under Maryland law on January 29, 1992.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has eight series of shares (the "Funds"), each of which
operates as a separate mutual fund with separate assets and liabilities. Each
Fund is a diversified fund. An investor in one of the Funds has an interest
only in that Fund.
Each Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Corporation has issued and outstanding Class B
shares which are offered by Waddell & Reed, Inc. through a separate Prospectus.
Class B shares are not subject to a sales charge on purchases but are subject to
a contingent deferred sales charge if redeemed within a certain period of time.
Class B shares are subject to a Rule 12b-1 fee at an annual rate of up to 1% of
the Fund's average net assets attributable to Class B shares and may have other
expenses that differ in amount from those of the Class Y shares. Additional
information about Class B shares may be obtained by calling or by writing to
Waddell & Reed, Inc. at the telephone number or address on the inside back cover
of this Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by a Fund of a request in writing signed by shareholders holding not
less than 10% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Corporation are met. There will normally
be no meeting of the shareholders for the purpose of electing directors until
such time as less than a majority of directors holding office have been elected
by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the 1940 Act applies to the Corporation, the directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of the outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or class, in which case only the shareholders of the affected Fund or class
is entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United Asset
Strategy Fund, Inc., since 1940 or the inception of the company, whichever was
later, and to TMK/United Funds, Inc. since that fund's inception, until January
8, 1992, when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO has
also served as investment manager for United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of Total Return Fund. Mr. Thompson has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Mark G. Seferovich is primarily responsible for the day-to-day management
of the portfolio of Growth Fund. Mr. Seferovich has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund and Vice President of another investment company for
which WRIMCO serves as investment manager. Mr. Seferovich has served as the
portfolio manager of investment companies managed by Waddell & Reed, Inc. and
its successor, WRIMCO, since February 1989 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since February 1989.
W. Patrick Sterner is primarily responsible for the day-to-day management
of the portfolio of Limited-Term Bond Fund. Mr. Sterner has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO and Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO.
He is also Vice President of the Fund and Vice President of another investment
company for which WRIMCO serves as investment manager. He has been an employee
of WRIMCO since August 1992. Mr. Sterner was Chief Investment Officer of The
Merchants Bank from 1985 through August 1992.
John M. Holliday is primarily responsible for the day-to-day management of
the portfolio of Municipal Bond Fund. Mr. Holliday has held his Fund
responsibilities since September 1992. He is Senior Vice President of WRIMCO
and Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. He is Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. Mr.
Holliday has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1979 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since April 1978.
Thomas A. Mengel is primarily responsible for the day-to-day management of
the portfolio of International Growth Fund. Mr. Mengel has held his Fund
responsibilities since May 1, 1996. Mr. Mengel is Vice President of WRIMCO.
From 1993 to 1996, Mr. Mengel was the President of Sal. Oppenheim jr. & Cie.
Securities, Inc.; from 1992 to 1993, Mr. Mengel was a Vice President at Hauck
and Hope Securities; and from 1989 to 1992, Mr. Mengel was the Manager of German
Equities at Berliner Bank, in Berlin, Germany.
Michael L. Avery is primarily responsible for the day-to-day management
of the equity portion of the portfolio of Asset Strategy Fund. Mr. Avery has
held his Fund responsibilities since January 1997. He is Senior Vice President
of WRIMCO, Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO, Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. Mr. Avery
has served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. and its successor, WRIMCO, since February 1, 1994, has served as
the director of research of Waddell & Reed, Inc. and its successor, WRIMCO,
since August 1987, and has been an employee of Waddell & Reed, Inc. and its
successor, WRIMCO, since June 1981.
Daniel J. Vrabac is primarily responsible for the day-to-day management of
the fixed-income portion of the portfolio of Asset Strategy Fund. Mr. Vrabac
has held his Fund responsibilities since January 1997. He is Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO, Vice President
of the Fund and Vice President of other investment companies for which WRIMCO
serves as investment manager. Mr. Vrabac has served as an investment analyst
with WRIMCO since May 1994, and was a Vice President of Kansas City Life
Insurance Company from May 1983 to May 1994.
Abel Garcia is primarily responsible for the day-to-day management of the
portfolio of Science and Technology Fund. Mr. Garcia has held his Fund
responsibilities since July 31, 1997. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
Vice President of the Fund, and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Garcia has been an employee of
Waddell & Reed, Inc. and its successor, WRIMCO, since August 1983.
Louise D. Rieke is primarily responsible for the day-to-day management of
the portfolio of High Income Fund. Ms. Rieke has held her Fund responsibilities
since July 31, 1997. She is Vice President of WRIMCO and Vice President of
Waddell & Reed Asset Management Company, an affiliate of WRIMCO. She is Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Ms. Rieke has served as the portfolio
manager for investment companies managed by Waddell & Reed, Inc. and its
successor, WRIMCO, since January 1990 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since May 1971.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to the Funds' investments.
Waddell & Reed, Inc. serves as the principal underwriter and sole
distributor of the Corporation's shares. Waddell & Reed, Inc. also serves as
underwriter for each of the funds in the United Group of Mutual Funds and acts
as the principal underwriter and distributor for variable life insurance and
variable annuity policies issued by United Investors Life Insurance Company for
which TMK/United Funds, Inc. is the underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends to
shareholders. Waddell & Reed Services Company also acts as agent ("Accounting
Services Agent") in providing bookkeeping and accounting services and assistance
to the Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing
so may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in the share
price or dividends of that Fund; they are neither billed directly to
shareholders nor deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee is computed on each Fund's net asset value as of the close of
business each day at an annual rate as follows:
Annual
Fund Rate
---- ------
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal Bond
Fund 0.56%
International
Growth Fund 0.81%
Asset Strategy
Fund 0.81%
Science and Technology
Fund 0.71%
High Income
Fund 0.66%
The management fee is accrued and paid to WRIMCO daily. The management fee
for Growth Fund, International Growth Fund and Asset Strategy Fund is higher
than that of most funds.
For the fiscal year ended March 31, 1997, management fees for each Fund
then in existence as a percentage of each such Fund's net assets were as
follows:
Management
Fund Fee
- ---- ---
Total Return
Fund 0.71%
Growth Fund 0.81%
Limited-Term
Bond Fund 0.56%
Municipal
Bond Fund 0.56%
International
Growth Fund 0.80%
Asset Strategy
Fund 0.76%
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, each Fund has other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class Y shares, each Fund pays the Shareholder Servicing Agent a monthly fee
based on the average daily net assets of the class for the preceding month.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by a Fund under Federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
For the fiscal year ended March 31, 1997, total expenses for each Fund's
Class Y shares as a percentage of average net assets were as follows: Total
Return Fund 1.18%; Growth Fund 1.17%; Limited-Term Bond Fund 1.04%; Municipal
Bond Fund 1.28%; International Growth Fund 1.59%; and Asset Strategy Fund
1.61%.
The Funds may have a high portfolio turnover. See the Financial
Highlights Table for past turnover rates of Total Return Fund, Growth Fund,
Limited-Term Bond Fund, Municipal Bond Fund, International Growth Fund and Asset
Strategy Fund. Science and Technology Fund and High Income Fund cannot
precisely predict what their respective portfolio turnover rates will be;
however, it is anticipated that the annual turnover rate for each of these Funds
will not exceed 100%. International Growth Fund's ability to invest all or a
substantial amount of its assets in foreign securities may result in a higher
turnover rate and higher commission costs. A high turnover rate will increase a
Fund's transaction costs and commission costs and could generate taxable income
or loss.
Distribution
The Corporation, pursuant to Rule 12b-1 of the 1940 Act and as authorized
under a Distribution and Service Plan (the "Plan"), may finance the distribution
of the Class Y shares of the Funds and/or the service and maintenance of Class Y
shareholder accounts.
The Plan provides that the Corporation, with respect to each Fund, may
compensate the Distributor in an amount calculated and payable daily up to 0.25%
of the Fund's average net assets of its Class Y shares. There are two parts to
this fee: all or a portion of the fee may be paid to the Distributor for
distribution services and distribution expenses including commissions paid by
the Distributor to its account representatives and account managers (the
"distribution fee") with respect to a particular Fund's Class Y shares; and all
or a portion of the fee may be paid to the Distributor to finance the provision
of certain personal services by the Distributor and Waddell & Reed Services
Company to Class Y shareholders and the provision of services to maintain Class
Y shareholder accounts (the "service fee"). However, the total amount of the
distribution fee and service fee paid by a Fund pursuant to the Plan will not
exceed, on an annual basis, 0.25% of the average net assets of that Fund's Class
Y shares.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which
the Corporation may use. The Corporation may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
securities eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. A
Standard & Poor's ("S&P") corporate bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service ("MIS") rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Description of Preferred Stock Ratings
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF NOTE RATINGS
Standard and Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
note rating reflects the liquidity factors and market access risks unique to
notes. Notes maturing in 3 years or less will likely receive a note rating.
Notes maturing beyond 3 years will most likely receive a long-term debt rating.
The following criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term
of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS ratings
for state and municipal short-term obligations will be designated MIS Investment
Grade (MIG). This distinction is in recognition of the differences between
short-term credit risk and long-term risk. Factors affecting the liquidity of
the borrower are uppermost in importance in short-term borrowing, while various
factors of major importance in bond risk are of lesser importance over the short
run. Rating symbols and their meanings follow:
MIG 1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
commercial paper rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market. Ratings are
graded into several categories, ranging from "A-1" for the highest quality
obligations to D for the lowest. Issuers rated A are further referred to by use
of numbers 1, 2 and 3 to indicate the relative degree of safety. Issues
assigned an A rating (the highest rating) are regarded as having the greatest
capacity for timely payment. An A-1 designation indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation. An A-2 rating indicates that capacity for timely payment is
satisfactory; however, the relative degree of safety is not as high as for
issues designated A-1. Issues rated A-3 have adequate capacity for timely
payment; however, they are more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations. Issues rated B
are regarded as having only speculative capacity for timely payment. A C rating
is assigned to short-term debt obligations with a doubtful capacity for payment.
Debt rated D is in payment default, which occurs when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace period.
Moody's Investors Service, Inc. commercial paper ratings are opinions of
the ability of issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. MIS employs the designations of
Prime 1, Prime 2 and Prime 3, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers. Issuers rated Prime 1 have a
superior capacity for repayment of short-term promissory obligations and
repayment capacity will normally be evidenced by (1) lending market positions in
well established industries; (2) high rates of return on Funds employed; (3)
conservative capitalization structures with moderate reliance on debt and ample
asset protection; (4) broad margins in earnings coverage of fixed financial
charges and high internal cash generation; and (5) well established access to a
range of financial markets and assured sources of alternate liquidity. Issuers
rated Prime 2 also have a strong capacity for repayment of short-term promissory
obligations as will normally be evidenced by many of the characteristics
described above for Prime 1 issuers, but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation;
capitalization characteristics, while still appropriate, may be more affected by
external conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics above
for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability in
earnings and profitability may result in changes in the level of debt protection
measurements and requirement for relatively high financial leverage; and
adequate alternate liquidity is maintained.
<PAGE>
Waddell & Reed Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Accountants Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
Waddell & Reed Funds, Inc.
Class Y Shares
PROSPECTUS
July 31, 1997
Waddell & Reed Funds, Inc.
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
Science and Technology Fund
High Income Fund
WRP4000-Y(7-97)
printed on recycled paper
<PAGE>
WADDELL & REED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
July 31, 1997
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
(the "Prospectus") for the Class B shares or the Class Y shares, as applicable,
of Waddell & Reed Funds, Inc. (the "Corporation") dated July 31, 1997, which may
be obtained from the Corporation or its principal underwriter and distributor,
Waddell & Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information .......................... 2
Goals and Investment Policies .................... 5
Investment Management and Other Services ......... 44
Purchase, Redemption and Pricing of Shares ....... 50
Directors and Officers ........................... 57
Payments to Shareholders ......................... 63
Taxes ............................................ 64
Portfolio Transactions and Brokerage ............. 70
Other Information ................................ 74
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's principal underwriter and
distributor (the "Distributor"), or the Corporation may, from time to time,
publish for one or more of the eight Funds (each a "Fund" and collectively the
"Funds") total return information, yield information and/or performance rankings
in advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Total return is calculated by assuming an initial $1,000 investment. Class B
shares redeemed during the first four years after their purchase may be subject
to a contingent deferred sales charge (the "deferred sales charge") in a maximum
amount equal to 3%. See "Purchase, Redemption and Pricing of Shares." The
average annual total return quotations for Class B shares reflect the imposition
of the maximum applicable deferred sales charge. All dividends and
distributions are assumed to be reinvested in shares of the applicable class at
net asset value as of the day the dividend or distribution is paid. No sales
load is charged on reinvested dividends or distributions on Class B shares. The
formula used to calculate the average annual total return for a particular class
of the Funds is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented that may not
reflect the deferred sales charge.
The average annual total return quotations for Class B shares of each Fund
with the maximum deferred sales charge deducted as of March 31, 1997, which is
the most recent balance sheet included in this SAI, for the periods shown were
as follows:
One Year PeriodPeriod from
From 4-1-96 9-21-92* to
to 3-31-97 3-31-97
--------------- -----------
Total Return Fund 8.93% 14.39%
Growth Fund -13.57% 16.59%
Limited-Term Bond Fund 0.55% 3.84%
Municipal Bond Fund 2.32% 6.02%
International Growth Fund 21.85% 7.41%
Asset Strategy Fund -3.73% 0.09%**
*Date of initial public offering
**For the period from April 20, 1995, the date of initial public offering,
to March 31, 1997.
High Income Fund and Science and Technology Fund did not commence
operations prior to March 31, 1997.
The average annual total return quotations for the Class B shares of each
fund without the maximum deferred sales charge deducted as of March 31, 1997,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
One Year Period Period from
From 4/1/96 9/21/92* to
to 3-31-97 3-31-97
--------------- --------------
Total Return Fund 11.93% 14.39%
Growth Fund -10.97% 16.59%
Limited-Term Bond Fund 3.52% 3.84%
Municipal Bond Fund 5.32% 6.02%
International Growth Fund 24.85% 7.41%
Asset Strategy Fund -0.86% 1.08%**
*Date of initial public offering
**For the period from April 20, 1995, the date of initial public offering,
to March 31, 1997.
High Income Fund and Science and Technology Fund did not commence
operations prior to March 31, 1997.
International Growth Fund (formerly Global Income Fund) changed its name
and investment objective effective April 20, 1995. Prior to this change, this
Fund's policies related to providing a high level of current income rather than
long-term appreciation.
Prior to December 2, 1995, the Funds offered only one class of shares to
the public. Shares of each Fund outstanding on that date were designated as
Class B shares. Since that date, Class Y shares of each of the Funds have been
available to certain institutional investors.
The average annual total return quotations for Class Y shares as of
March 31, 1997, which is the most recent balance sheet included in this SAI, for
the periods shown were as follows:
One Year Period Period from
From 4/1/96 inception* to
to 3-31-97 3-31-97
--------------- --------------
Total Return Fund 12.69% 15.90%
Growth Fund -10.37% -5.33%
Limited-Term Bond Fund 4.33% 3.07%
Municipal Bond Fund 5.96% 3.23%
International Growth Fund 25.93% 22.46%
Asset Strategy Fund 0.05% -0.16%
*Each of the Funds commenced selling Class Y shares on December 29, 1995.
High Income Fund and Science and Technology Fund did not commence
operations prior to March 31, 1997.
Yield
A yield quoted for a Fund is computed by dividing the net investment income
per share earned during the period for which the yield is shown by the maximum
offering price per share on the last day of that period according to the
following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period.
The yields computed according to the formula for the 30-day period ended
on March 31, 1997, the date of the most recent balance sheet included in this
SAI, for Class B shares of each of Limited-Term Bond Fund and Municipal Bond
Fund are:
Limited-Term Bond Fund 4.89%
Municipal Bond Fund 4.48%
The yields computed according to the formula for the 30-day period ended on
March 31, 1997, the date of the most recent balance sheet included in this SAI,
for Class Y shares of each of Limited-Term Bond Fund and Municipal Bond Fund
are:
Limited-Term Bond Fund 5.84%
Municipal Bond Fund 4.59%
Municipal Bond Fund may also advertise or include in sales materials its
tax equivalent yield, which is calculated by applying the stated income tax rate
to only the net investment income exempt from taxation according to a standard
formula which provides for computation of tax equivalent yield by dividing that
portion of the Fund's yield which is tax-exempt by one minus a stated income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
The tax equivalent yield for Class B shares of Municipal Bond Fund
computed according to the formula for the 30-day period ended on March 31, 1997,
the date of the most recent balance sheet included in this SAI, is 5.26%, 6.20%,
6.46%, 6.96% and 7.38% for marginal tax brackets of 15%, 28%, 31%, 36% and
39.6%, respectively. The tax equivalent yield computed for Class Y shares of
Municipal Bond Fund according to the formula for the 30-day period ended on
March 31, 1997, the date of the most recent balance sheet included in this SAI,
is 5.39%, 6.35%, 6.62%, 7.14% and 7.56% for marginal tax brackets of 15%, 28%,
31%, 36% and 39.6%, respectively.
Changes in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses.
Yield quotations do not reflect the imposition of the deferred sales charge
described above. If such deferred sales charge imposed at the time of
redemption was reflected, it would reduce the performance quoted.
Non-standardized performance information may also be presented.
Performance Rankings
The Distributor or the Corporation also may from time to time publish
for one or more of the eight Funds in advertisements or sales material
performance rankings as published by recognized independent mutual fund
statistical services such as Lipper Analytical Services, Inc., or by
publications of general interest such as Forbes, Money, The Wall Street Journal,
Business Week, Barron's, Fortune or Morningstar Mutual Fund Values. Each class
of a Fund may also compare its performance to that of other selected mutual
funds or selected recognized market indicators such as the Standard & Poor's 500
Composite Stock Price Index and the Dow Jones Industrial Average. Performance
information may be quoted numerically or presented in a table, graph or other
illustration.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of the Funds are described in the
Prospectus, which refers to the following investment methods and practices.
Asset Allocation
Asset Strategy Fund allocates its assets among the following classes, or
types, of investments:
The short-term class includes all types of domestic and foreign securities
and money market instruments with remaining maturities of three years or less.
Waddell & Reed Investment Management Company, investment manager to the Funds
("WRIMCO"), will seek to maximize total return within the short-term asset class
by taking advantage of yield differentials between different instruments,
issuers, and currencies. Short-term instruments may include corporate debt
securities, such as commercial paper and notes; government securities issued by
U.S. or foreign governments or their agencies or instrumentalities; bank
deposits and other financial institution obligations; repurchase agreements
involving any type of security; and other similar short-term instruments. These
instruments may be denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign fixed-income
securities with maturities greater than three years. WRIMCO seeks to maximize
total return within the bond class by adjusting Asset Strategy Fund's
investments in securities with different credit qualities, maturities, and
coupon or dividend rates, and by seeking to take advantage of yield
differentials between securities. Securities in this class may include bonds,
notes, adjustable-rate preferred stocks, convertible bonds, mortgage-related and
asset-backed securities, domestic and foreign government and government agency
securities, zero coupon bonds, and other intermediate and long-term securities.
As with the short-term class, these securities may be denominated in U.S.
dollars or foreign currency. Asset Strategy Fund may also invest in lower
quality, high-yielding debt securities (commonly referred to as "junk bonds").
The Fund currently intends to limit its investments in these securities to 20%
of its total assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable rate preferred stocks, which are included in the
bond class). WRIMCO seeks to maximize total return within this asset class by
actively allocating assets to industry sectors expected to benefit from major
trends, and to individual stocks that WRIMCO believes to have superior growth
potential. Securities in the stock class may include common stocks, fixed-rate
preferred stocks (including convertible preferred stocks), warrants, rights,
depositary receipts, securities of closed-end investment companies, and other
equity securities issued by companies of any size, located anywhere in the
world.
WRIMCO seeks to take advantage of yield differentials by considering the
purchase or sale of instruments when differentials on spreads between various
grades and maturities of such instruments approach extreme levels relative to
long-term norms.
In making asset allocation decisions, WRIMCO typically evaluates
projections of risk, market conditions, economic conditions, volatility, yields,
and returns.
Securities - General
The main types of securities in which the Funds may invest include common
stock, preferred stock, debt securities and convertible securities, as described
in the Prospectus. These securities may include the following described
securities from time to time.
All of the Funds (other than Municipal Bond Fund) may purchase debt
securities whose principal amount at maturity is dependent upon the performance
of a specified equity security. The issuer of such debt securities, typically
an investment banking firm, is unaffiliated with the issuer of the equity
security to whose performance the debt security is linked. Equity-linked debt
securities differ from ordinary debt securities in that the principal amount
received at maturity is not fixed, but is based on the price of the linked
equity security at the time the debt security matures. The performance of
equity-linked debt securities depends primarily on the performance of the linked
equity security and may also be influenced by interest rate changes. In
addition, although the debt securities are typically adjusted for diluting
events such as stock splits, stock dividends and certain other events affecting
the market value of the linked equity security, the debt securities are not
adjusted for subsequent issuances of the linked equity security for cash. Such
an issuance could adversely affect the price of the debt security. In addition
to the equity risk relating to the linked equity security, such debt securities
are also subject to credit risk with regard to the issuer of the debt security.
In general, however, such debt securities are less volatile than the equity
securities to which they are linked.
All of the Funds (other than Municipal Bond Fund) may also invest in a type
of convertible preferred stock that pays a cumulative, fixed dividend that is
senior to, and expected to be in excess of, the dividends paid on the common
stock of the issuer. At the mandatory conversion date, the preferred stock is
converted into not more than one share of the issuer's common stock at the "call
price" that was established at the time the preferred stock was issued. If the
price per share of the related common stock on the mandatory conversion date is
less than the call price, the holder of the preferred stock will nonetheless
receive only one share of common stock for each share of preferred stock (plus
cash in the amount of any accrued but unpaid dividends). At any time prior to
the mandatory conversion date, the issuer may redeem the preferred stock upon
issuing to the holder a number of shares of common stock equal to the call price
of the preferred stock in effect on the date of redemption divided by the market
value of the common stock, with such market value typically determined one or
two trading days prior to the date notice of redemption is given. The issuer
must also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation, and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only
by the credit of the instrumentality and by a pool of mortgage assets. If the
securities are not backed by the full faith and credit of the United States, the
owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. Limited-Term Bond Fund will invest in securities of agencies and
instrumentalities only if WRIMCO is satisfied that the credit risk involved is
acceptable.
U.S. Government Securities may include mortgage-backed securities issued by
U.S. Government agencies or instrumentalities including, but not limited to,
Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities
include "pass-through" securities, "participation certificates" and
collateralized mortgage obligations. See "Mortgage-Backed Securities" and
"Asset-Backed Securities." Timely payment of principal and interest on Ginnie
Mae pass-throughs is guaranteed by the full faith and credit of the United
States. Freddie Mac and Fannie Mae are both instrumentalities of the U.S.
Government, but their obligations are not backed by the full faith and credit of
the United States. It is possible that the availability and the marketability
(i.e., liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury security and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. Original issue zeros are zero coupon securities originally issued by
the U.S. Government, a government agency, or a corporation in zero coupon form.
Municipal Bonds
Municipal bonds are issued by a wide range of state and local governments,
agencies and authorities for various purposes. The two main kinds of municipal
bonds are "general obligation" bonds and "revenue" bonds. In "general
obligation" bonds, the issuer has pledged its full faith, credit and taxing
power for the payment of principal and interest. "Revenue" bonds are payable
only from specific sources; these may include revenues from a particular
facility or class of facilities or special tax or other revenue source.
A special class of bonds issued by state and local government authorities
and agencies are "industrial development bonds." Only those industrial
development bonds the interest on which is free from Federal income taxation
(although it may be an item of tax preference for purposes of the alternative
minimum tax) will be considered "municipal bonds." In general, industrial
development bonds are revenue bonds and are issued by or on behalf of public
authorities to obtain funds to finance privately operated facilities. They
generally depend for their credit quality on the credit standing of the company
involved. Such entities and persons should consult with their tax advisers
before investing in Municipal Bond Fund. Municipal Bond Fund does not intend to
invest 25% or more of its assets in industrial development bonds.
Municipal leases and participation interests therein are another
specific type of municipal bond. The factors that WRIMCO considers in
determining whether or not any rated municipal lease obligations are liquid
include the following: (i) the frequency of trades and quotes for the
obligations; (ii) the number of dealers willing to purchase or sell the security
and the number of other potential buyers; (iii) the willingness of dealers to
undertake to make a market in the securities; (iv) the nature of marketplace
trades, including the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer; (v) the likelihood that the
marketability of the obligation will be maintained through the time the
instrument is held; (vi) the credit quality of the issuer and the lessee; and
(vii) the essentiality to the lessee of the property covered by the lease.
Unrated municipal lease obligations are considered illiquid. These obligations,
which may take the form of a lease, an installment purchase, or a conditional
sale contract, are issued by state and local governments and authorities to
acquire land and a variety of equipment and facilities. The Funds have not held
and do not intend to hold such obligations directly as a lessor of the property,
but may from time to time purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives a
Fund a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.
Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt, including
voter referenda, interest rate limits or public sale requirements. Leases,
installment purchases or conditional sale contracts have evolved as a means for
governmental issuers to acquire property and equipment without being required to
meet these constitutional and statutory requirements. Many leases and contracts
include "non-appropriation clauses" providing that the governmental issuer has
no obligation to make future payments under the lease or contract unless money
is appropriated for such purpose by the legislative body on a yearly or other
periodic basis. Non-appropriation clauses free the issuer from debt issuance
limitations. In determining the liquidity of a municipal lease obligation,
WRIMCO will differentiate between direct interests in municipal leases and
municipal lease-backed securities, the latter of which may take the form of a
lease-backed revenue bond, a tax-exempt asset-backed security or any other
investment structure using a municipal lease-purchased agreement as its base.
While the former may present liquidity issues, the latter are based on a well
established method of securing payment of a municipal lease obligation.
WRIMCO and the Funds rely on the opinion of bond counsel for the issuer
in determining whether obligations are municipal bonds. If a court should hold
that an obligation held by Municipal Bond Fund is not a municipal bond (i.e.,
that the interest thereon is taxable), Municipal Bond Fund will sell the
obligation as soon as possible, but it might incur a loss upon such sale.
With respect to ratings of municipal bonds (see Appendix A to the
Prospectus), now or in the future, Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc. ("MIS") may use
different rating designations for municipal bonds depending on their maturities
on issuance or other characteristics. For example, MIS currently rates the top
four categories of "municipal notes" (i.e., municipal bonds generally with a
maturity at the time of issuance ranging from six months to three years) as MIG
1, MIG 2, MIG 3 and MIG 4. Subject to the particular Fund's goal and investment
policies, municipal bonds purchased by a Fund (other than Asset Strategy Fund)
will be considered investment grade for purposes of the percentage limits in the
Prospectus if they are within the top four rating designations of S&P or MIS for
the type of municipal bond in question. A Fund is not required to dispose of
any municipal bond if its rating falls below the rating required for its
purchase, nor does such a fall in rating affect the amount of unrated municipal
bonds that a Fund may buy.
Mortgage-Backed Securities
Mortgage-backed securities represent direct or indirect participations
in, or are secured by and payable from, mortgage loans secured by real property
and include single- and multi-class pass-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to in this SAI as "CMOs." The
U.S. Government mortgage-backed securities in which the Funds may invest include
mortgage-backed securities issued or guaranteed as to the payment of principal
and interest (but not as to market value) by Ginnie Mae, Fannie Mae or Freddie
Mac. Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. Payments of principal and interest (but not the market value) of such
private mortgage-backed securities may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. These credit enhancements
do not protect investors from changes in market value.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
Asset-Backed Securities
Asset-backed securities have structural characteristics similar to
mortgage-backed securities, as discussed above. However, the underlying assets
are not first lien mortgage loans or interests therein, but include assets such
as motor vehicle installment sales contracts, other installment sale contracts,
home equity loans, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to a certain
amount and for a certain time period by a letter of credit or pool insurance
policy issued by a financial institution unaffiliated with the issuer, or other
credit enhancements may be present. The value of asset-backed securities may
also depend on the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing the credit
enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities
The yield characteristics of mortgage-backed and asset-backed securities
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other obligations generally may be prepaid at any time.
Prepayments on a pool of mortgage loans are influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. Generally, however, prepayments on fixed-
rate mortgage loans will increase during a period of falling interest rates and
decrease during a period of rising interest rates. Similar factors apply to
prepayments on asset-backed securities, but the receivables underlying asset-
backed securities generally are of a shorter maturity and thus are likely to
experience substantial prepayments. Such securities, however, often provide
that for a specified time period the issuers will replace receivables in the
pool that are repaid with comparable obligations. If the issuer is unable to do
so, repayment of principal on the asset-backed securities may commence at an
earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the mortgage-
backed securities, and this delay reduces the effective yield to the holder of
such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and may carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries on
dates prior to their stated maturities. Floating rate securities have interest
rates that change whenever there is a change in a designated base rate while
variable rate instruments provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for the
instrument that approximates its par value. Each Fund may invest in variable
and floating rate instruments as long as WRIMCO determines that it is consistent
with the Fund's goal(s) and investment policies.
Bank Deposits
Among the debt securities in which the Funds may invest are deposits in
banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits ("Insured Deposits"),
currently to the extent of $100,000 per bank. Bank deposits are not marketable,
and a Fund may invest in them only within the limit mentioned under "Illiquid
Investments" unless such obligations are payable at principal amount plus
accrued interest on demand or within seven days after demand.
Indexed Securities
Each Fund (other than Municipal Bond Fund) may purchase securities the
value of which varies in relation to the value of other securities, securities
indices, currencies, precious metals or other commodities, or other financial
indicators, subject to its operating policy regarding derivative instruments.
Indexed securities typically, but not always, are debt securities or deposits
whose value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically
provide for a maturity value that depends on the price of gold, resulting in a
security whose price tends to rise and fall together with gold prices.
Currency-indexed securities typically are short-term to intermediate-term debt
securities whose maturity values or interest rates are determined by reference
to the values of one or more specified foreign currencies, and may offer higher
yields than U.S. dollar-denominated securities of equivalent issuers. Currency-
indexed securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also have
prices that depend on the values of a number of different foreign currencies
relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. WRIMCO will use its judgment in determining
whether indexed securities should be treated as short-term instruments, bonds,
stocks, or as a separate asset class for purposes of Asset Strategy Fund's
investment allocations, depending on the individual characteristics of the
securities. Certain indexed securities that are not traded on an established
market may be deemed illiquid.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or other
receivables), or to other parties. Direct debt instruments are subject to a
Fund's policies regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and interest.
Direct debt instruments may not be rated by any nationally recognized rating
service. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protections than an unsecured
loan in the event of non-payment of scheduled interest or principal. However,
there is no assurance that the liquidation of collateral from a secured loan
would satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor involves
substantially greater risks, and may be highly speculative. Borrowers that are
in bankruptcy or restructuring may never pay off their indebtedness, or may pay
only a small fraction of the amount owed. Direct indebtedness of developing
countries also involves a risk that the governmental entities responsible for
the repayment of the debt may be unable, or unwilling, to pay interest and
principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to a Fund. For
example, if a loan is foreclosed, a Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning and
disposing of the collateral. Direct debt instruments may also involve a risk of
insolvency of the lending bank or other intermediary. Direct debt instruments
that are not in the form of securities may offer less legal protection to a Fund
in the event of fraud or misrepresentation. In the absence of definitive
regulatory guidance, a Fund relies on WRIMCO's research in an attempt to avoid
situations where fraud or misrepresentation could adversely affect the Fund.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan, as
specified in the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the borrower, it may have to
rely on the agent to apply appropriate credit remedies against a borrower. If
assets held by the agent for the benefit of a Fund were determined to be subject
to the claims of the agent's general creditors, the Fund might incur certain
costs and delays in realizing payment on the loan or loan participation and
could suffer a loss of principal or interest.
Investments in direct debt instruments may entail less legal protection for
a Fund. Direct indebtedness purchased by a Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments obligating a
Fund to pay additional cash on demand. These commitments may have the effect of
requiring a Fund to increase its investment in a borrower at a time when it
would not otherwise have done so, even if the borrower's condition makes it
unlikely that the amount will ever be repaid. A Fund will set aside appropriate
liquid assets in a segregated custodial account to cover its potential
obligations under standby financing commitments. Other types of direct debt
instruments, such as loans through direct assignment of a financial
institution's interest with respect to a loan, may involve additional risks to a
Fund. For example, if a loan is foreclosed, the Fund could become part owner of
any collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
For purposes of the limitations on the amount of total assets that a Fund
will invest in any one issuer or in issuers within the same industry, a Fund
generally will treat the borrower as the "issuer" of indebtedness held by the
Fund. In the case of loan participations where a bank or other lending
institution serves as financial intermediary between a Fund and the borrower, if
the participation does not shift to the Fund the direct debtor-creditor
relationship with the borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund, in appropriate circumstances, to treat both
the lending bank or other lending institution and the borrower as "issuers" for
these purposes. Treating a financial intermediary as an issuer of indebtedness
may restrict a Fund's ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Foreign Securities and Currency
International Growth Fund, Asset Strategy Fund, Total Return Fund,
Growth Fund, Science and Technology Fund and High Income Fund may purchase
securities of foreign issuers, subject to the restrictions described in the
Prospectus. Limited-Term Bond Fund and Municipal Bond Fund may not invest in
foreign securities.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency as
the securities into which they may be converted. American depositary receipts,
in registered form, are dollar-denominated receipts typically issued by a U.S.
bank or trust company evidencing ownership of the underlying securities.
International depositary receipts and European depositary receipts, in bearer
form, are foreign receipts evidencing a similar arrangement and are designed for
use by non-U.S. investors and traders in non-U.S. markets. Global depositary
receipts are more recently developed receipts designed to facilitate the trading
of foreign issuers by U.S. and non-U.S. investors and traders.
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Individual foreign companies may
also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. WRIMCO believes that ability to invest assets abroad might
enable a Fund to take advantage of these differences and strengths where they
are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage). A
Fund may bear a transaction charge in connection with the exchange of currency.
There may be less publicly available information about a foreign company than
about a domestic company. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. Most foreign stock markets have
substantially less volume than the New York Stock Exchange (the "NYSE") and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less government
regulation of stock exchanges, brokers and listed companies than in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. If it should become
necessary, a Fund would normally encounter greater difficulties in commencing a
lawsuit against the issuer of a foreign security than it would against a U.S.
issuer.
Restricted Securities
Restricted securities are subject to legal or contractual
restrictions on resale because they are not registered under the Securities Act
of 1933, as amended (the "1933 Act"). Restricted securities generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the 1933 Act, or in a registered public offering. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time it
decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent a Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which a Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments."
Lending Securities
One of the ways in which each of the Funds (except Municipal Bond Fund) may
try to realize income is by lending its portfolio securities. If a Fund does
this, the borrower pays the Fund an amount equal to the dividends or interest on
the securities that the Fund would have received if it had not loaned the
securities. The Fund also receives additional compensation.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). Under the present
Guidelines, the collateral must consist of cash, U.S. Government Securities or
bank letters of credit, at least equal in value to the market value of the
securities loaned on each day that the loan is outstanding. If the market value
of the loaned securities exceeds the value of the collateral, the borrower must
add more collateral so that it at least equals the market value of the
securities loaned. If the market value of the securities decreases, the
borrower is entitled to the return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by the Fund if the demand meets the terms of the letter. The Fund's
right to make this demand secures the borrower's obligations to it. The terms
of any such letters and the creditworthiness of the banks providing them (which
might include the Fund's custodian bank) must be satisfactory to the Fund.
Under the Funds' current securities lending procedures, a Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. A Fund will make loans only under rules of the NYSE, which presently
require the borrower to return the securities to the Fund within five business
days after the Fund gives notice to do so. If a Fund loses its voting rights on
securities loaned, it will have the securities returned to it in time to vote
them if a material event affecting the investment is to be voted on. A Fund may
pay reasonable finder's, administrative and custodian fees in connection with
loans of securities.
No more than 10% of the respective assets of Total Return Fund, Growth
Fund, International Growth Fund, Science and Technology Fund or High Income
Fund, or 30% of the assets of Limited-Term Bond Fund, may be loaned at any one
time. As a fundamental policy, Asset Strategy Fund may not lend more than 10%
of its total assets at one time.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned, (ii) the investment of cash collateral, or
(iii) voting rights.
Repurchase Agreements
Each of the Funds may purchase securities subject to repurchase
agreements subject to its limitation on investment in illiquid investments. See
"Illiquid Investments." A repurchase agreement is an instrument under which a
Fund purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security at
a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase agreements in which a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
than that from the repurchase agreement. The Funds' repurchase agreements will
be structured so as to fully collateralize the loans. In other words, the value
of the underlying securities, which will be held by the Fund's custodian bank or
by a third party that qualifies as a custodian under Section 17(f) of the
Investment Company Act of 1940, as amended (the "1940 Act"), is and, during the
entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
Warrants and Rights
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
Each Fund (other than Growth Fund and Total Return Fund) may purchase
any securities in which it may invest on a when-issued or delayed-delivery basis
or sell them on a delayed-delivery basis. The securities so purchased or sold
by a Fund are subject to market fluctuation; their value may be less or more
when delivered than the purchase price paid or received. For example, delivery
to a Fund and payment by a Fund in the case of a purchase by it, or delivery by
a Fund and payment to it in the case of a sale by a Fund, may take place a month
or more after the date of the transaction. The purchase or sale price is fixed
on the transaction date. A Fund will enter into when-issued or delayed-delivery
transactions in order to secure what is considered to be an advantageous price
and yield at the time of entering into the transaction. No interest accrues to
a Fund until delivery and payment is completed. When a Fund makes a commitment
to purchase securities on a when-issued or delayed-delivery basis, it will
record the transaction and thereafter reflect the value of the securities in
determining its net asset value per share. The securities sold by a Fund on a
delayed-delivery basis are also subject to market fluctuation; their value when
a Fund delivers them may be more than the purchase price the Fund receives.
When a Fund makes a commitment to sell securities on a delayed-delivery basis,
it will record the transaction and thereafter value the securities at the sales
price in determining the Fund's net asset value per share.
Ordinarily a Fund purchases securities on a when-issued or delayed-delivery
basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Precious Metals
The ownership of precious metals such as gold, silver or platinum may allow
Asset Strategy Fund to take a temporary, defensive position. For example,
during periods of declining stock prices, the price of gold may increase or
remain stable, while the value of the stock market may be subject to a general
decline. Under these or similar circumstances, the ability of Asset Strategy
Fund to purchase and hold gold, silver or platinum will allow it to benefit from
a potential increase in the price of precious metals or stability in the price
of such metals at a time when the value of securities may be declining.
Asset Strategy Fund anticipates that gold, silver or platinum will be
purchased in the form of bullion. The Fund may incur expenses for the shipping,
storage and insurance of precious metals it purchases.
Precious metals prices are affected by various factors, such as economic
conditions, political events and monetary policies. As a result, the price of
gold, silver or platinum may fluctuate widely. The sole source of return to the
Fund from such investments will be gains realized on sales; a negative return
will be realized if the metal is sold at a loss. Investments in precious metals
do not provide a yield.
Asset Strategy Fund's direct investment in precious metals may be limited
by tax considerations. See "Taxes."
Illiquid Investments
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, High Income Fund and Science and Technology
Fund may not invest more than 10% of their respective net assets in illiquid
investments. Asset Strategy Fund does not currently intend to purchase a
security if, as a result, more than 15% of its net assets would be invested in
illiquid investments. Investments currently considered to be illiquid include:
(i) repurchase agreements not terminable within seven days; (ii) securities for
which market quotations are not readily available; (iii) over-the-counter
("OTC") options and their underlying collateral; (iv) bank deposits, unless they
are payable at principal amount plus accrued interest on demand or within seven
days after demand; (v) restricted securities not determined to be liquid
pursuant to guidelines established by the Board of Directors; (vi) securities
involved in swap, cap, collar and floor transactions; (vii) non-government
stripped fixed-rate mortgage-backed securities; and (viii) direct debt
instruments. The assets used as cover for OTC options written by a Fund will be
considered illiquid unless the OTC options are sold to qualified dealers who
agree that the Fund may repurchase any OTC option it writes at a maximum price
to be calculated by a formula set forth in the option agreement. The cover for
an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts, forward currency contracts, swaps, caps, collars, floors and
indexed securities (collectively "Financial Instruments") to attempt to enhance
a Fund's income or yield or to attempt to hedge a Fund's investments.
Generally, a Fund may purchase and sell any type of Financial Instrument.
However, as an operating policy, a Fund will only purchase or sell a particular
Financial Instrument if the Fund is authorized to invest in the type of asset by
which the return on, or value of, the Financial Instrument is primarily measured
or, with respect to foreign currency derivatives, if the Fund is authorized to
invest in foreign securities.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge, a Fund takes a
position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge, a Fund takes a position in a Financial Instrument whose price is expected
to move in the same direction as the price of the prospective investment being
hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an
anticipatory hedge transaction, a Fund does not own a corresponding security
and, therefore, the transaction does not relate to a security the Fund owns.
Rather, it relates to a security that the Fund intends to acquire. If a Fund
does not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the transaction
were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which a Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the SEC, the several exchanges upon which they are traded and the Commodity
Futures Trading Commission (the "CFTC"). In addition, a Fund's ability to use
Financial Instruments will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with Financial Instruments and other similar or related techniques.
These new opportunities may become available as WRIMCO develops new techniques,
as regulatory authorities broaden the range of permitted transactions and as new
Financial Instruments or other techniques are developed. WRIMCO may utilize
these opportunities to the extent that they are consistent with a Fund's goal(s)
and permitted by a Fund's investment limitations and applicable regulatory
authorities. The Funds' Prospectus or SAI will be supplemented to the extent
that new products or techniques involve materially different risks than those
described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Financial Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction (the "counterparty") to
enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. The purchase of call options can serve as a long hedge, and
the purchase of put options can serve as a short hedge. Writing put or call
options can enable a Fund to enhance income or yield by reason of the premiums
paid by the purchasers of such options. However, if the market price of the
security underlying a put option declines to less than the exercise price of the
option, minus the premium received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security or currency at less than its market value. If the call option
is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put that a Fund may purchase is an "optional delivery standby
commitment," which is entered into by parties selling debt securities to the
Fund. An optional delivery standby commitment gives a Fund the right to sell
the security back to the seller on specified terms. This right is provided as
an inducement to purchase the security.
Risks of Options on Securities. A Fund may purchase or write both
exchange-traded and OTC options. Exchange-traded options in the United States
are issued by a clearing organization affiliated with the exchange on which the
option is listed that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between a Fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a Fund purchases an OTC option, it relies on
the counterparty from whom it purchased the option to make or take delivery of
the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the Fund
as well as the loss of any expected benefit of the transaction.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. However, there can be no assurance that a Fund will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the counterparty, a Fund might be unable to close out
an OTC option position at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
a Fund buys a call on an index, it pays a premium and has the same rights as to
such call as are indicated above. When a Fund buys a put on an index, it pays a
premium and has the right, prior to the expiration date, to require the seller
of the put, upon the Fund's exercise of the put, to deliver to the Fund an
amount of cash if the closing level of the index upon which the put is based is
less than the exercise price of the put, which amount of cash is determined by
the multiplier, as described above for calls. When a Fund writes a put on an
index, it receives a premium and the purchaser of the put has the right, prior
to the expiration date, to require the Fund to deliver to it an amount of cash
equal to the difference between the closing level of the index and the exercise
price times the multiplier if the closing level is less than the exercise price.
Risks of Options on Indices. The risks of investment in options on indices
may be greater than options on securities. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. The Fund can offset some of the risk of writing a call index option
by holding a diversified portfolio of securities similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same securities as underlie
the index and, as a result, bears a risk that the value of the securities held
will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows a Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to
its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average duration
of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average
duration of a Fund's fixed-income portfolio, the Fund may sell a debt futures
contract or a call option thereon, or purchase a put option on that futures
contract. If WRIMCO wishes to lengthen the average duration of a Fund's fixed-
income portfolio, the Fund may buy a debt futures contract or a call option
thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory
action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. However, there can be no assurance that a liquid secondary market will
exist for a particular contract at a particular time. In such event, it may not
be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the futures contract or option or to
maintain liquid assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationships between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest rate, currency exchange rate or stock market trends by WRIMCO
may still not result in a successful transaction. WRIMCO may be incorrect in
its expectations as to the extent of various interest rate, currency exchange
rate or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in the
price of an index future and movements in the price of the securities that are
the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Operating Policy. To the extent that a Fund enters into futures contracts,
options on futures contracts or options on foreign currencies traded on a CFTC-
regulated exchange, in each case other than for bona fide hedging purposes (as
defined by the CFTC), the aggregate initial margin and premiums required to
establish those positions (excluding the amount by which options are "in-the-
money" at the time of purchase) will not exceed 5% of the liquidation value of
that Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into. (In general, a
call option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's assets that are at risk
in futures contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. Each Fund
(other than Limited-Term Bond Fund and Municipal Bond Fund) may use options and
futures contracts on foreign currencies, as described above, and foreign
currency forward contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or to attempt to enhance income or yield. Currency hedges can
protect against price movements in a security that a Fund owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.
Each of these Funds might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, a Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Each Fund (other than Limited-Term Bond Fund
and Municipal Bond Fund) may enter into forward currency contracts to purchase
or sell foreign currencies for a fixed amount of U.S. dollars or another foreign
currency. A forward currency contract involves an obligation to purchase or
sell a specific currency at a future date, which may be any fixed number of days
(term) from the date of the forward currency contract agreed upon by the
parties, at a price set at the time of the forward currency contract. These
forward currency contracts are traded directly between currency traders (usually
large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that a Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each of these Funds may also use forward contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
For example, if a Fund owned securities denominated in pounds sterling, it could
enter into a forward contract to sell pounds sterling in return for U.S. dollars
to hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each of these Funds could also hedge the position by
selling another currency expected to perform similarly to the pound sterling,
for example, by entering into a forward contract to sell Deutsche Marks or
European Currency Units in return for U.S. dollars. This type of hedge,
sometimes referred to as a "proxy hedge," could offer advantages in terms of
cost, yield, or efficiency, but generally would not hedge currency exposure as
effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.
Each of these Funds also may use forward currency contracts to attempt
to enhance income or yield. A Fund could use forward currency contracts to
increase its exposure to foreign currencies that WRIMCO believes might rise in
value relative to the U.S. dollar, or shift its exposure to foreign currency
fluctuations from one country to another. For example, if a Fund owned
securities denominated in a foreign currency and WRIMCO believed that currency
would decline relative to another currency, it might enter into a forward
contract to sell an appropriate amount of the first foreign currency, with
payment to be made in the second foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or liquid assets in a segregated
account.
The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served.
Combined Positions. A Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of its overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Turnover. A Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps, collars
and floors, can be individually negotiated and structured to include exposure to
a variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease a Fund's exposure to
long- or short-term interest rates (in the United States or abroad), foreign
currency values, mortgage-backed security values, corporate borrowing rates, or
other factors such as security prices or inflation rates.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps or
floors will be monitored by WRIMCO in accordance with procedures adopted by the
Corporation's Board of Directors. If a default occurs by the other party to
such transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. Each Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
Investment Restrictions
Certain of the Funds' investment restrictions are described in the
Prospectus and this SAI. The following are fundamental policies and together
with certain restrictions described in the Prospectus cannot be changed without
the approval of the holders of a majority of the outstanding shares of the
affected Fund. As defined in the 1940 Act, this means the lesser of the vote of
(a) 67% of the shares of the Fund at a meeting where more than 50% of the
outstanding shares are present in person or by proxy, or (b) more than 50% of
the outstanding shares of the Fund. If a percentage restriction is adhered to
at the time of an investment or transaction, later changes in percentage
resulting from a change in value of portfolio securities or amount of total
assets will not be considered a violation of the restriction.
(i)Total Return Fund, Growth Fund, Limited-Term Bond
Fund, Municipal Bond Fund, International Growth Fund, Science and Technology
Fund and High Income Fund may not buy real estate, any nonliquid interests in
real estate investment trusts or interests in real estate limited partnerships;
however, each of these Funds may buy obligations or instruments that it
otherwise may buy even though the issuer invests in real estate or interests in
real estate. Asset Strategy Fund may not invest in real estate limited
partnerships or purchase or sell real estate unless acquired as a result of
ownership of securities (but this shall not prevent this Fund from purchasing
and selling securities issued by companies or other entities or investment
vehicles that deal in real estate or interests therein, nor shall this prevent
this Fund from purchasing interests in pools of real estate mortgage loans).
(ii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, High Income Fund and Science and
Technology Fund may not acquire shares of an investment company that
issues redeemable securities. Total Return Fund, Growth Fund,
International Growth Fund, High Income Fund and Science and Technology
Fund may buy shares of an investment company that does not issue
redeemable securities if the Fund does so in a regular transaction in
the open market and in compliance with the requirements of the 1940
Act. Notwithstanding the foregoing, each of these Funds may also
acquire investment company shares as part of a merger, consolidation or
other reorganization.
(iii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, High Income Fund and Science and
Technology Fund may not lend money or other assets, other than through
certain limited types of loans; however, each of these Funds may buy
debt securities and other obligations consistent with its goal and its
other investment policies and restrictions, may enter into repurchase
agreements and, except Municipal Bond Fund, may lend its portfolio
securities. Asset Strategy Fund may not make loans, except (a) by
lending portfolio securities provided that no securities loan will be
made if, as a result thereof, more than 10% of this Fund's total assets
(taken at current value) would be lent to another party; (b) through
the purchase of debt securities and other obligations consistent with
its goal and its other investment policies and restrictions; and (c) by
engaging in repurchase agreements with respect to portfolio
securities.
(iv) No Fund may invest for the purpose of exercising control or management
of another issuer.
(v) No Fund may sell securities short (unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities sold
short) or purchase securities on margin, except that (1) this policy
does not prevent a Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments, (2) a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (3) a Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments.
(vi) No Fund may engage in the underwriting of securities of other issuers,
except to the extent that, in connection with the disposition of
portfolio securities, the Fund may be deemed an underwriter under
Federal securities laws.
(vii) No Fund may invest in a security if, as a result, it would own more
than 10% of the outstanding voting securities of an issuer, or if more
than 5% of the Fund's total assets would be invested in securities of
that issuer, provided that U.S. Government Securities are not subject
to this limitation and up to 25% of the Fund's total assets may be
invested without regard to these restrictions.
(viii) No Fund (other than Science and Technology Fund) may buy a security if,
as a result, 25% or more of the Fund's total assets would then be
invested in securities of issuers having their principal business
activities in the same industry, except for municipal bonds (other than
industrial development bonds) and U.S. Government Securities.
(ix) Municipal Bond Fund may not purchase warrants.
(x) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, High Income Fund and Science and
Technology Fund may not purchase or sell physical commodities; however,
this policy does not prevent these Funds from purchasing and selling
foreign currency, futures contracts, options, forward contracts, swaps,
caps, collars, floors and other financial instruments. Asset Strategy
Fund may not purchase or sell physical commodities, except that this
Fund may purchase and sell precious metals for temporary, defensive
purposes; however, this policy shall not prevent this Fund from
purchasing and selling foreign currency, futures contracts, options,
forward contracts, swaps, caps, collars, floors and other financial
instruments.
(xi) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, High Income Fund and Science and
Technology Fund may not issue senior securities. Asset Strategy Fund
may not issue bonds or any other class of securities preferred over
shares of the Fund in respect of the Fund's assets or earnings,
provided that this Fund may issue additional series and classes of
shares in accordance with its Articles of Incorporation.
Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund, Science and Technology Fund and High
Income Fund may not borrow money, except that these Funds may borrow
money (and pledge assets in connection therewith) from banks for
temporary, extraordinary or emergency purposes but only up to 5% of
their respective assets. Asset Strategy Fund may not borrow money,
except that this Fund may borrow money for emergency or extraordinary
purposes (not for leveraging or investment) in an amount not exceeding
33 1/3% of the value of its total assets (less liabilities other than
borrowings). Any borrowings that come to exceed 33 1/3% of the value
of Asset Strategy Fund's total assets by reason of a decline in net
assets will be reduced within three days to the extent necessary to
comply with the 33 1/3% limitation. For purposes of this limitation,
"three days" means three days, exclusive of Sundays and holidays.
(xii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund, International Growth Fund and High Income Fund may not invest in
interests in oil, gas or mineral leases or mineral development
programs, including oil and gas limited partnerships.
For purposes of applying restriction (vii) there may be a question as to
who is the "issuer" of municipal bonds. For example, municipal bonds may be
created by a particular government but be backed only by the assets and revenues
of a subdivision of that government such as an agency, instrumentality,
authority or other subdivision. In such case, such subdivision would be
considered the "issuer" for the purposes of the 5% restriction. In the case of
industrial development bonds, the nongovernmental user of facilities financed by
them is also considered as a separate "issuer." This restriction does not apply
to U.S. Government Securities. The method of determining who is an "issuer" may
be changed without shareholder vote. In applying this 5% restriction, the same
standards apply as set forth above for determining who is an "issuer;" however,
it also considers for the purpose of this 5% restriction that a guarantee by a
government or other entity of a municipal bond is a separate security that would
be given a value and included in the 5% restriction if the value of all
municipal bonds created by the government or entity and owned by a Fund should
exceed 10% of the value of its total assets.
The following investment limitations of Asset Strategy Fund are not
fundamental and may be changed by the Board of Directors without shareholder
approval:
(1) Asset Strategy Fund may borrow money only from a bank. Asset Strategy
Fund will not purchase any security while borrowings representing more than 5%
of its total assets are outstanding.
(2) Asset Strategy Fund does not currently intend to lend assets
other than securities to other parties, except by acquiring loans, loan
participations, or other forms of direct debt instruments. (This limitation
does not apply to purchases of debt securities and other obligations or to
repurchase agreements.)
(3) Asset Strategy Fund does not currently intend to (a) purchase
securities of other investment companies, except in the open market where no
commission except the ordinary broker's commission is paid and if, as a result
of such purchase, the Fund does not have more than 10% of its total assets
invested in such securities, or (b) purchase or retain securities issued by
other open-end investment companies. These limitations do not apply to
securities received as dividends, through offers of exchange, or as a result of
a reorganization, consolidation, or merger.
(4) Asset Strategy Fund does not currently intend to purchase the
securities of any issuer (other than securities issued or guaranteed by domestic
or foreign governments or political subdivision thereof) if, as a result, more
than 5% of its total assets would be invested in the securities of business
enterprises that, including predecessors, have a record of less than three years
of continuous operation. This restriction does not apply to any obligation
issued or guaranteed by the U.S. Government or a state or local government
authority, or their respective agencies or instrumentalities, or to CMOs, other
mortgage-related securities, asset-backed securities or indexed securities.
(5) Asset Strategy Fund does not currently intend to invest in oil, gas,
or other mineral exploration or development programs or leases.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Fund's turnover rate may vary
greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for the fiscal years ended March 31, 1997
and 1996 for each of the Funds then in existence were as follows:
1997 1996
----- ----
Total Return Fund 26.23% 16.78%
Growth Fund 37.20 31.84
Limited-Term Bond Fund 23.05 22.08
Municipal Bond Fund 34.72 42.02
International Growth Fund* 94.76 88.55
Asset Strategy Fund 109.92 75.02
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
Asset Strategy Fund commenced operations on April 20, 1995. The portfolio
turnover rate for the common stock portion of Asset Strategy Fund's portfolio
for the fiscal year ended March 31, 1997 was _____%; the rate for the remainder
of the portfolio was _____%.
Science and Technology Portfolio and High Income Portfolio had not
commenced operations prior to the close of the fiscal year ended March 31,
1997.
A high turnover rate will increase transaction costs and commission costs
that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with WRIMCO. Under the Management Agreement, WRIMCO is employed to
supervise the investments of the Funds and provide investment advice to the
Funds. The address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue,
P.O. Box 29217, Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. (the
"Distributor") is the Corporation's principal underwriter and distributor.
The Management Agreement permits WRIMCO or an affiliate of WRIMCO to enter
into a separate agreement for transfer agency services (the "Shareholder
Servicing Agreement") and a separate agreement for accounting services (the
"Accounting Services Agreement") with the Corporation. The Management Agreement
contains detailed provisions as to the matters to be considered by the
Corporation's Board of Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager
to each of the registered investment companies in the United Group of Mutual
Funds, except United Asset Strategy Fund, Inc., since 1940 or the company's
inception date, whichever was later, and to TMK/United Funds, Inc. since that
fund's inception, until January 8, 1992, when it assigned its duties as
investment manager for these funds (and the related professional staff) to
WRIMCO. WRIMCO has also served as investment manager for United Asset Strategy
Fund, Inc. since it commenced operations in March 1995. Waddell & Reed, Inc.
serves as principal underwriter for the Funds, the investment companies in the
United Group of Mutual Funds and acts as principal underwriter and distributor
for variable life insurance and variable annuity policies issued by United
Investors Life Insurance Company for which TMK/United Funds, Inc. is the
underlying investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
the Distributor, the Agent performs shareholder servicing functions, including
the maintenance of shareholder accounts, the issuance, transfer and redemption
of shares, distribution of dividends and payment of redemptions, the furnishing
of related information to the Corporation and handling of shareholder inquiries.
A new Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides the Corporation with bookkeeping
and accounting services and assistance, including maintenance of the
Corporation's records, pricing of the Corporation's shares, and preparation of
prospectuses for existing shareholders, proxy statements and certain reports.
A new Accounting Services Agreement, or amendments to an existing one, may be
approved by the Corporation's Board of Directors without shareholder approval.
Payments for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus. The management
fees paid to WRIMCO during the fiscal years ended March 31, 1997, 1996 and 1995
for each of the Funds then in existence were as follows:
1997 1996 1995
---- ----- ----
Total Return Fund $1,886,789$1,051,336 $599,703
Growth Fund 1,904,258 1,180,192 537,667
Limited-Term Bond Fund 108,389 87,085 64,948
Municipal Bond Fund 200,636 169,713 140,752
International Growth Fund* 251,914 126,515 70,373
Asset Strategy Fund 116,390 52,588**
*International Growth Fund (formerly Global Income Fund) changed its name,
investment objective and management fee effective April 20, 1995.
**For the period from 4/20/95, the date of initial public offering, to
3/31/96.
Science and Technology Fund and High Income Fund had not commenced
operations prior to the close of the fiscal year ended March 31, 1997.
For purposes of calculating the daily fee the Corporation does not include
money owed to it by the Distributor for shares which it has sold but not yet
paid to the Corporation. The Corporation accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class B shares,
each Fund pays the Agent a monthly fee of $1.3125 ($1.0208 prior to April 1,
1996) for each shareholder account that was in existence at any time during the
prior month, plus $0.30 for each account on which a dividend or distribution, of
cash or shares, had a record date in that month. For Class Y shares, each Fund
pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average
daily net assets of that class for the preceding month. Each Fund also pays
certain out-of-pocket expenses of the Agent, including long distance telephone
communications costs; microfilm and storage costs for certain documents; forms,
printing and mailing costs; and costs of legal and special services not provided
by the Distributor, WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent a monthly
fee of one-twelfth of the annual fee shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Fees paid to the Agent during the fiscal years ended March 31, 1997,
1996 and 1995 for each of the Funds then in existence were as follows:
1997 1996 1995
---- ----- ----
Total Return Fund $50,000 $40,833 $30,833
Growth Fund 50,000 40,000 28,333
Limited-Term Bond Fund 10,000 10,000 10,000
Municipal Bond Fund 20,000 20,000 12,500
International Growth Fund* 17,500 10,000 10,000
Asset Strategy Fund 10,000 3,333**
*International Growth Fund (formerly Global Income Fund) changed its name
and investment objective effective April 20, 1995.
**For the period 4-20-95, the date of initial public offering, to 3-31-96.
Science and Technology Fund and High Income Fund had not commenced
operations prior to the close of the fiscal year ended March 31, 1997.
Because the Corporation pays a management fee for investment supervision
and an accounting services fee for accounting services as discussed above,
WRIMCO and the Agent, respectively, pay all of their own expenses in providing
these services. Amounts paid by the Corporation under the Shareholder Servicing
Agreement are described above. The Distributor and its affiliates pay the
Corporation's Directors and officers who are affiliated with the Distributor and
its affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
The Corporation pays all of its other expenses. These include, for each
Fund, the costs of materials sent to shareholders, audit and outside legal fees,
taxes, brokerage commissions, interest, insurance premiums, custodian fees, fees
payable by the Corporation under Federal or other securities laws and to the
Investment Company Institute and nonrecurring and extraordinary expenses,
including litigation and indemnification relating to litigation.
Distribution Arrangement
The Distributor acts as principal underwriter and distributor of the
Corporation's shares pursuant to an underwriting agreement (the "Underwriting
Agreement"). The Underwriting Agreement requires the Distributor to use its
best efforts to sell the shares of the Corporation but is not exclusive, and
permits and recognizes that the Distributor also distributes shares of other
investment companies and other securities. Shares are sold on a continuous
basis.
Under a Distribution and Service Plan for the Class B shares (the "Class B
Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act, the
Corporation, with respect to each Fund, pays the Distributor daily a
distribution fee not to exceed, on an annual basis, 0.75% of the particular
Fund's Class B net asset value and a service fee not to exceed, on an annual
basis, 0.25% of the particular Fund's Class B net asset value. Under a
Distribution and Service Plan for Class Y shares (the "Class Y Plan") adopted by
the Corporation pursuant to Rule 12b-1, with respect to each Fund, the
Corporation pays the Distributor daily a distribution and/or service fee not to
exceed, on an annual basis, 0.25% of the particular Fund's Class Y net asset
value.
The Distributor offers the Corporation's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
contemplated, to make distribution of shares also through other broker-dealers.
In distributing shares through its sales force, the Distributor will pay
commissions and incentives to the sales force at or about the time of sale and
will incur other expenses including for prospectuses, sales literature,
advertisements, sales office maintenance, processing of orders and general
overhead with respect to its efforts to distribute the Corporation's shares.
The Class B Plan, the Class Y Plan and the Underwriting Agreement contemplate
that the Distributor may be compensated for these distribution efforts through
the distribution fee. The sales force may be paid continuing compensation based
on the value of the shares held by shareholders to whom the member of the sales
force is assigned to provide personal services, and the Distributor or its
subsidiary, Waddell & Reed Services Company, may also provide services to
shareholders through telephonic means and written communications. For the
fiscal year ended March 31, 1997, the Corporation paid (or accrued) the
following amounts to the Distributor as distribution fees and service fees under
the Class B Plan for each of the Funds: Total Return Fund - $1,997,173 and
$645,242; Growth Fund - $1,767,043 and $566,457; Limited-Term Bond Fund -
$145,292 and $47,846; Municipal Bond Fund - $269,119 and $82,819; International
Growth Fund (formerly Global Income Fund) - $233,734 and $69,183; and Asset
Strategy Fund - $107,986 and $35,643. Science and Technology Fund and High
Income Fund had not commenced operations prior to the close of the fiscal year
ended March 31, 1997. For the fiscal year ended March 31, 1997, the Corporation
paid (or accrued) the following amounts to the Distributor as distribution fees
and service fees under the Class Y Plan for each of the Funds: Total Return
Fund - $380; Growth Fund - $106; Limited-Term Bond Fund - $41; Municipal Bond
Fund - $3; International Growth Fund - $124; and Asset Strategy Fund - $48.
Science and Technology Fund and High Income Fund had not commenced operations
prior to the close of the fiscal year ended March 31, 1997. The distribution
fees were paid to compensate the Distributor for its expenses relating to sales
force compensation, providing prospectuses and sales literature to prospective
investors, advertising, sales processing, field office expenses and home office
sales management in connection with the distribution of Class B and/or Class Y
shares of a Fund. The service fees were paid to compensate the Distributor for
providing personal services to the particular Fund's Class B and/or Class Y
shareholders and for the maintenance of Class B and/or Class Y accounts.
The Class B Plan, the Class Y Plan and the Underwriting Agreement were
approved by the Corporation's Board of Directors, including the Directors who
are not interested persons of the Corporation or of the Distributor and who have
no direct or indirect financial interest in the operations of the Plan or any
agreement referred to in the Plan (hereafter the "Plan Directors"). Each Plan
was also approved as to each Fund by the Distributor as the sole shareholder of
the affected shares of each of the Funds, and classes thereof, at the time.
Among other things, the Plan for each class provides that (i) the
Distributor will submit to the Directors at least quarterly, and the Directors
will review, reports regarding all amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendments thereto are approved by the Directors including the Plan Directors
acting in person at a meeting called for that purpose, (iii) payments by the
Corporation under the Plan shall not be materially increased without the
affirmative vote of the holders of a majority of the outstanding shares of that
class of each affected Fund, and (iv) while the Plan remains in effect, the
selection and nomination of the Directors who are Plan Directors shall be
committed to the discretion of the Plan Directors.
For the Corporation's fiscal year ended March 31, 1997, the Distributor
earned deferred sales charges from each of the Funds with respect to Class B
shares then in existence as follows: Total Return Fund - $331,859; Growth Fund
- - $376,052; Limited-Term Bond Fund - $32,326; Municipal Bond Fund - $79,842;
International Growth Fund (formerly Global Income Fund) - $34,827; and Asset
Strategy Fund - $30,534. Science and Technology Fund and High Income Fund had
not commenced operations prior to the fiscal year ended March 31, 1997.
Custodial and Auditing Services
The custodian for each Fund is UMB Bank, n.a., Kansas City, Missouri.
In general, the custodian is responsible for holding each Fund's cash and
securities. Deloitte & Touche LLP, Kansas City, Missouri, the Funds'
independent accountants, audits the Corporation's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value of
the assets of that class, less the liabilities of that class, divided by the
total number of shares outstanding of that class.
The offering price of a Class B or a Class Y share is its net asset value
next determined following acceptance of a purchase order. The number of shares
you receive for your purchase depends on the next offering price after the
Distributor receives and accepts your order at its principal business office at
the address shown on the cover of this SAI. You will be sent a confirmation
after your purchase which will indicate how many shares you have purchased.
Shares are normally issued for cash only.
The Distributor need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value per share is ordinarily computed once on each day that
the NYSE is open for trading as of the later of the close of the regular session
of the NYSE or the close of the regular session of any domestic securities or
commodities exchange on which an option or future held by a Fund is traded. The
NYSE annually announces the days on which it will not be open for trading. The
most recent announcement indicates that the NYSE will not be open on the
following days: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. However, it is
possible that the NYSE may close on other days. The net asset value changes
every business day, since the value of the assets and the number of shares
outstanding changes every business day.
The securities in the portfolio of each Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using Nasdaq (National Association of Securities Dealers
Automated Quotations system), which provides information on bid and asked prices
quoted by major dealers in such stocks. Bonds, other than convertible bonds,
are generally valued using a third-party pricing system. Convertible bonds are
valued using this pricing system only on days when there is no sale reported.
Short-term debt securities are valued at amortized cost, which approximates
market. When market quotations are not readily available, securities and other
assets are valued at fair value as determined in good faith by or under the
direction of the Board of Directors.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of a Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period, the
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of a Fund conducted on a spot (i.e., cash) basis are valued at the
spot rate for purchasing or selling currency prevailing on the foreign exchange
market. This rate under normal market conditions differs from the prevailing
exchange rate in an amount generally less than one-tenth of one percent due to
the costs of converting from one currency to another.
Options and futures contracts purchased and held by a Fund are valued at
the last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for option trading
on national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by a Fund will be either the closing price
of that contract or the bid price. Conversely, the value of a futures contract
sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium received
is included in the Statement of Assets and Liabilities as an asset, and an
equivalent deferred credit is included in the liability section. The deferred
credit is "marked-to-market" to reflect the current market value of the put or
call. If the call a Fund wrote is exercised, the proceeds received on the sale
of the related investment are increased by the amount of the premium the Fund
received. If a Fund exercised a call it purchased, the amount paid to purchase
the related investment is increased by the amount of the premium paid. If a put
written by a Fund is exercised, the amount that the Fund pays to purchase the
related investment is decreased by the amount of the premium it received. If a
Fund exercises a put it purchased, the amount the Fund receives from the sale of
the related investment is reduced by the amount of the premium it paid. If a
put or call written by a Fund expires, it has a gain in the amount of the
premium; if a Fund enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium was more or less than the cost of
the closing transaction.
Minimum Initial and Subsequent Investments
For Class B shares, initial investments must be at least $1,000 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to exchanges of shares from one Fund to another Fund. A $50 minimum
initial investment pertains to purchases for certain retirement plan accounts
and to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account by having regular
monthly withdrawals of $25 or more made from a bank account. A minimum initial
investment of $25 is applicable to purchases made through payroll deduction for
or by employees of WRIMCO, the Distributor, their affiliates or certain
retirement plan accounts. Except with respect to certain exchanges and
automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount.
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $1 million. There is no initial investment
minimum for other Class Y investors.
Flexible Withdrawal Service
If you qualify, you may arrange to receive through the Flexible
Withdrawal Service (the "Service") regular monthly, quarterly, semiannual or
annual payments by redeeming on a regular basis Class B shares. To qualify
for the Service, you must have invested at least $10,000 in Class B shares which
you still own of any of the Funds, or Class B shares of United Cash Management,
Inc., a fund in the United Group of Mutual Funds, or you must own Class B shares
having a value of at least $10,000. Applicable forms to start the Service are
available from Waddell & Reed, Inc.
The maximum amount of the withdrawal for monthly, quarterly, semiannual and
annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to a percentage
of the value of the shares in your Account (you select the percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five
shares).
Shares ordinarily are redeemed on the 20th day of the month in which the
payment is to be made (or on the prior business day if the 20th is not a
business day). Payments are usually made within five days of the redemption.
Retirement Plan Accounts may be subject to a fee imposed by the plan
custodian for use of their service.
The dividends and distributions on shares of a Fund that you have made
available for the Service are paid in additional Class B shares of that Fund.
All payments under the Service are made by redeeming Class B shares, which may
involve a gain or loss for tax purposes. To the extent that payments exceed
dividends and distributions, the number of Class B shares you own will decrease.
When all of the shares in your account are redeemed, you will not receive any
further payments. Thus, the payments are not an annuity or income or return on
your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you.
Subject to the deferred sales charge, you may at any time redeem part or all of
the shares of a Fund in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchange Privilege
Class B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for Class B
shares of another Fund of the Corporation, or for Class B shares of United Cash
Management, Inc., without charge.
The redemption of a Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class A shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of a Fund. The shares of United Cash Management, Inc. which you
designate must be worth at least $100, which may be allocated among different
Funds so long as each Fund receives a value of at least $25. Minimum initial
investment and minimum balance requirements apply to such service. These
exchange and other rights can in most instances be eliminated or modified at any
time, upon notice in certain circumstances, and any related request may not be
accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
Fund of the Corporation.
General Exchange Information
The exchange will be made at the net asset values next determined after
receipt of your written request in good order by the Corporation. When you
exchange shares, the total shares you receive will have the same aggregate net
asset value as the total shares you exchange.
These exchange rights may be eliminated or modified at any time by the
Corporation, upon notice in certain circumstances.
Retirement Plans
As described in the Prospectus, your account may be set up as a funding
vehicle for a retirement plan. For individual taxpayers meeting certain
requirements, Waddell & Reed, Inc. offers prototype documents for the following
retirement plans. All of these plans involve investment in shares of one or
more of the Funds (other than Municipal Bond Fund).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. For tax years after 1996, the annual maximum for married
couples is $4,000 ($2,000 for each spouse) or, if less, the couple's combined
earned income for the taxable year, even if one spouse had no earned income.
The contributions are deductible unless the investor (or, if married, either
spouse) is an active participant in a qualified retirement plan or if,
notwithstanding that the investor or one or both spouses so participate, their
adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution that is
either (a) a direct rollover distribution from an employer's plan or (b) a
rollover of an eligible distribution paid to the investor from an employer's
plan or another IRA. To the extent a rollover contribution is made to an IRA,
the distribution will not be subject to Federal income tax until distributed
from the IRA. A direct rollover generally applies to any distribution from an
employer's plan (including a custodial account under Section 403(b)(7) of the
Internal Revenue Code of 1986, as amended (the "Code"), but not an IRA) other
than certain periodic payments, required minimum distributions and other
specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Simplified Employee Pension (SEP) plans. Employers can make contributions
to SEP-IRAs established for employees. An employer may contribute up to 15% of
compensation, or $24,000, whichever is less, per year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from the Distributor. These plans may involve complex tax questions
as to premature distributions and other matters. Investors should consult their
tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures and deferred
sales charges. Redemption payments are made within seven days unless delayed
because of emergency conditions determined by the SEC, when the NYSE is closed
other than for weekends or holidays, or when trading on the NYSE is restricted.
Payment is made in cash, although under extraordinary conditions redemptions may
be made in portfolio securities. Payment for redemptions of shares of the
Corporation may be made in portfolio securities when the Corporation's Board of
Directors determines that conditions exist making cash payments undesirable.
Redemptions made in securities will be made only in readily marketable
securities and the shareholder will incur commission or other transaction
charges in order to convert these securities into cash. Securities used for
payment of redemptions are valued at the value used in figuring net asset value.
The Corporation, however, has elected to be governed by Rule 18f-1 under the
1940 Act, pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of its net asset value during any 90-day period
for any one shareholder.
As stated in the Prospectus for Class B shares, a deferred sales charge is
inapplicable in a variety of circumstances. The deferred sales charge is the
subject of an effective order of exemption issued by the staff of the SEC. For
purposes of determining application of the deferred sales charge, "employees"
include retired employees and "directors" includes retired directors. A retired
employee is an individual separated from service from the Distributor or any of
its affiliated companies with a vested interest in any employee benefit plan
sponsored by the Distributor or any of its affiliated companies. "Account
representatives" includes retired account representatives. A "retired account
representative" is any account representative who was, at the time of separation
from service from the Distributor, a Senior Account Representative. A custodian
under the Uniform Gifts (or Transfers) to Minors Act purchasing for the child of
any employee or account representative may redeem shares without a deferred
sales charge whether or not the custodian is an eligible purchaser.
Reinvestment Privilege
The Prospectus for Class B shares discusses the reinvestment privilege for
Class B shares under which you may reinvest in any one or more of the Funds all
or part of any amount of Class B shares you redeemed and have the corresponding
amount of the deferred sales charge, if any, which you paid restored to your
account by adding the amount of that charge to the amount you are reinvesting.
If Class B shares of a Fund are then being offered, you can put all or part of
your redemption payment back into the Class B shares of that Fund at the net
asset value next determined after you have returned the amount. Your written
request to do this must be received within 30 days after your redemption. You
can do this only once as to Class B shares of that Fund. For purposes of
determining future deferred sales charges, the reinvestment will be treated as a
new investment. You do not use up this privilege by redeeming Class B shares to
invest the proceeds at net asset value in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer of the Corporation is given below. Each of the persons
listed through and including Mr. Wise is a member of the Corporation's Board of
Directors. The other persons are officers but not members of the Board of
Directors. For purposes of this section, the term "Fund Complex" includes each
of the registered investment companies in the United Group of Mutual Funds,
Waddell & Reed Funds, Inc. and TMK/United Funds, Inc. Each of the Corporation's
Directors is also a Director of each of the funds in the Fund Complex and each
of the Corporation's officers is also an officer of one or more of the funds in
the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Corporation and each of the other
funds in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Corporation and
each of the other funds in the Fund Complex. Date of birth: June 16, 1926.
KEITH A. TUCKER*
President of the Corporation and each of the other funds in the Fund
Complex; President, Chief Executive Officer and Director of Waddell & Reed
Financial Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell
& Reed, Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management
Company and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.;
Vice Chairman of the Board of Directors, Chief Executive Officer and President
of United Investors Management Company; Vice Chairman of the Board of Directors
of Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company. Date of birth: February 11, 1945.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma. Date of birth: September 3, 1921.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies, an actuarial consulting company;
President, Buchanan Ranch Corporation; formerly, Professor and Chairman of
Marketing, College of Business, University of Colorado. Date of birth: April
18, 1931.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law. Date of
birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
Director and consultant, McDougal Construction Company; formerly Senior
Vice President-Sales and Marketing, Garney Companies, Inc., a specialty utility
contractor. Date of birth: January 9, 1939.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Corporation and each
of the other funds in the Fund Complex. Date of birth: July 29, 1953.
JOHN F. HAYES*
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Kansas Bankshares;
Director of Central Properties, Inc.; Chairman, Gilliland & Hayes, P.A., a law
firm; formerly, President, Gilliland & Hayes, P.A. Date of birth: December 11,
1919.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of the
Corporation and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in the
Fund Complex then in existence on April 30, 1993); formerly, President, Director
and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company; formerly,
Director of Waddell & Reed Asset Management Company, United Investors Management
Company and United Investors Life Insurance Company, affiliates of Waddell &
Reed, Inc. Date of birth: April 27, 1928.
WILLIAM L. ROGERS
1999 Avenue of the Stars
Los Angeles, California 90067
Principal, Colony Capital, Inc., a real estate related investment company;
formerly, partner in Trivest, a private investment concern. Date of birth:
September 8, 1946.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Partner, Polsinelli, White, Vardeman & Shalton, a law firm. Date of birth:
April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City. Date of birth: January 1,
1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan. Date of birth: July 16,
1920.
Robert L. Hechler
Vice President and Principal Financial Officer of the Corporation and each
of the other funds in the Fund Complex; Vice President, Chief Operations
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and Treasurer of
WRIMCO; President, Chief Executive Officer, Principal Financial Officer,
Director and Treasurer of Waddell & Reed, Inc.; Director and Treasurer of
Waddell & Reed Asset Management Company; President, Director and Treasurer of
Waddell & Reed Services Company; Vice President, Treasurer and Director of
Torchmark Distributors, Inc. Date of birth: November 12, 1936.
Henry J. Herrmann
Vice President of the Corporation and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company. Date of birth: December 8,
1942.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the
Corporation and each of the other funds in the Fund Complex; Vice President of
Waddell & Reed Services Company. Date of birth: July 18, 1942.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Corporation and each
of the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Director,
Senior Vice President, Secretary and General Counsel of Waddell & Reed Services
Company; Director, Secretary and General Counsel of Waddell & Reed Asset
Management Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company. Date of birth:
February 9, 1959.
Michael L. Avery
Vice President of the Corporation and three other Funds in the Fund
Complex; Senior Vice President of WRIMCO and Vice President of Waddell & Reed
Asset Management Company; formerly, Vice President of Waddell & Reed, Inc.
Abel Garcia
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Vice President of Waddell & Reed Asset
Management Company; formerly, Vice President of Waddell & Reed, Inc.
John M. Holliday
Vice President of the Corporation and eight other funds in the Fund
Complex; Senior Vice President of WRIMCO and of Waddell & Reed Asset Management
Company; formerly, Senior Vice President of Waddell & Reed, Inc.
Louise D. Rieke
Vice President of the Corporation and three other funds in the Fund
Complex; Vice President of WRIMCO; Vice President of Waddell & Reed Asset
Management Company; formerly, Vice President of Waddell & Reed, Inc.
Mark G. Seferovich
Vice President of the Corporation and one other fund in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc.
W. Patrick Sterner
Vice President of the Corporation and one other fund in the Fund Complex;
Vice President of WRIMCO; Vice President of Waddell & Reed Asset Management
Company; formerly, Chief Investment Officer of The Merchants Bank.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Senior Vice President of Waddell & Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
Daniel J. Vrabac
Vice President of the Corporation and two other funds in the Fund Complex;
Vice President of WRIMCO and of Waddell & Reed Asset Management Company.
The address of each person is 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, six of the Corporation's Directors may be
deemed to be "interested persons" (as defined in the 1940 Act) of the
Distributor or of WRIMCO and, as such, also of the Corporation. The Directors
who may be deemed to be "interested persons" are indicated as such by an
asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a Director may elect after resignation from the Board
of Directors provided the Director has attained the age of 75 and has served as
a Director of the Corporation for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Corporation.
Messrs. Doyle Patterson and Jay B. Dillingham retired as Directors of the
Corporation and of each of the funds in the Fund Complex effective January 1,
1997 and January 14, 1997, respectively, and each has elected a position as
Director Emeritus. During the Corporation's fiscal year ended March 31, 1997,
Mr. Patterson received total compensation for his service as a Director of
$49,000 from the Fund Complex and aggregate compensation from the Corporation of
$1,666. For that fiscal year, Mr. Dillingham received total compensation for
his service as a Director of $49,000 from the Fund Complex and aggregate
compensation from the Corporation of $1,665.
The Corporation, the funds in the United Group and TMK/United Funds, Inc.
pay to each Director a total of $44,000 per year, plus $1,000 for each meeting
of the Board of Directors attended, plus reimbursement of expenses of attending
such meeting and $500 for each committee meeting attended which is not in
conjunction with a Board of Directors meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the Corporation, the funds in the United Group and TMK/United
Funds, Inc. based on the funds' relative size. During the Corporation's fiscal
year ended March 31, 1997, the Corporation's Directors received the following
fees for service as a director:
COMPENSATION TABLE
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
Ronald K. Richey $ 0 $ 0
Keith A Tucker 0 0
Henry L. Bellmon 1,702 50,000
Dodds I. Buchanan 1,702 50,000
Linda Graves 1,702 50,000
John F. Hayes 1,702 50,000
Glendon E. Johnson 1,666 49,000
William T. Morgan 1,702 50,000
William L. Rogers 870 24,000
Frank J. Ross, Jr. 870 24,000
Eleanor B. Schwartz 1,673 49,000
Frederick Vogel III 1,702 50,000
Paul S. Wise 1,702 50,000
*No pension or retirement benefits have been accrued as a part of Corporation
expenses.
Mr. Concannon and Mr. John A. Dillingham were elected as Directors on July
24, 1997. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of June 30, 1997, all of the Corporation's Directors and officers as
a group owned less than 1% of the outstanding shares of the Corporation. The
following table sets forth information with respect to the Corporation, as of
June 30, 1997, regarding the beneficial ownership of the series, and classes
thereof, of the Corporation's shares.
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class and of Record Percent
Waddell & Reed, Inc. Growth Fund
6300 Lamar Class Y %
P.O. Box 29217
Shawnee Mission, KS Municipal Bond Fund
66201-9217 Class Y
Limited-Term Bond Fund
Class Y
Asset Strategy Fund
Class Y
Corporate Money Pension Total Return Fund
Plan Class Y
Okanogan County Hospital
District 3 International Growth Fund
P. O. Box 793 Class Y
Omak WA 98841
Liberty National Life International Growth Fund
Insurance Company Class B
2001 Third Avenue South
Birmingham AL 35233
PAYMENTS TO SHAREHOLDERS
General
There are two (three, in the case of certain Funds) sources for the
payments a Fund makes to you as a shareholder of a class of shares of a Fund,
other than payments when you redeem your shares. The first source is net
investment income, which is derived from the dividends, interest and earned
discount on the securities a Fund holds, less expenses (which will vary by
class). The second source is net realized capital gains, which are derived from
the proceeds received from a Fund's sale of securities at a price higher than a
Fund's tax basis (usually cost) in such securities, less losses from sales of
securities at a price lower than the Fund's basis therein; these gains can be
either long-term or short-term, depending on how long a Fund has owned the
securities before it sells them. The third source (in the case of Total Return
Fund, Growth Fund, International Growth Fund, Asset Strategy Fund, Science and
Technology Fund and High Income Fund) is net realized gains from foreign
currency transactions. The payments made to shareholders from net investment
income, net short-term capital gains, and net realized gains from certain
foreign currency transactions are called dividends.
Each Fund pays distributions from net capital gains (the excess of net
long-term capital gains over net short-term capital losses). It may or may not
have such gains, depending on whether securities are sold and at what price. If
a Fund has net capital gains, it will pay distributions once each year, in the
latter part of the fourth calendar quarter, except to the extent it has net
capital losses from a prior year or years to offset the gains. It is the policy
of each Fund to make annual capital gains distributions to the extent that net
capital gains are realized in excess of available capital loss carryovers.
Income and expenses are earned and incurred separately by each Fund, and
gains and losses on portfolio transactions of each Fund are attributable only to
that Fund. For example, capital losses realized by one Fund would not affect
capital gains realized by another Fund.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
a Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the payment date for
the dividend or distribution, although this could be changed by the Board of
Directors.
TAXES
General
In order to qualify, or to continue to qualify, for treatment as a
regulated investment company ("RIC") under the Code, a Fund (each Fund being
treated as a separate entity for these purposes) must distribute to its
shareholders for each taxable year at least 90% of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gains and, for certain Funds, net gains from certain foreign currency
transactions) plus, in the case of Municipal Bond Fund, its net interest income
excludable from gross income under Section 103(a) of the Code ("Distribution
Requirement") and must meet several additional requirements. With respect to
each Fund, these requirements include the following: (1) the Fund must derive
at least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures contracts or forward contracts) derived with respect
to its business of investing in securities or those currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months -- options or futures
contracts (other than those on foreign currencies), or foreign currencies (or
options, futures contracts or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or options
and futures contracts with respect to securities) ("Short-Short Limitation");
(3) at the close of each quarter of the Fund's taxable year, at least 50% of the
value of its total assets must be represented by cash and cash items, U.S.
Government Securities, securities of other RICs and other securities that are
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities ("50% Diversification
Requirement"); and (4) at the close of each quarter of the Fund's taxable year,
not more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government Securities or the securities of other RICs) of any
one issuer.
Investments in precious metals would have adverse tax consequences for
Asset Strategy Fund and its shareholders if it either (1) derived more than 10%
of its gross income in any taxable year from the disposition of precious metals
and from other income that does not qualify under the Income Requirement or (2)
held precious metals in such quantities that the Fund failed to satisfy the 50%
Diversification Requirement for any quarter. Asset Strategy Fund intends to
manage its portfolio so as to avoid failing to satisfy those requirements for
these reasons.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gains net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the Fund's policy to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
the Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. If more than 50% of the value of
International Growth Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, that Fund will be eligible to,
and may, file an election with the Internal Revenue Service that will enable its
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by it. Pursuant
to any such election, International Growth Fund would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to (1)
include in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by that Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's Federal income tax.
International Growth Fund will report to its shareholders shortly after each
taxable year their respective shares of that Fund's income from sources within,
and taxes paid to, foreign countries and U.S. possessions if it makes this
election.
Each of International Growth Fund, Asset Strategy Fund, Total Return
Fund, Growth Fund, Science and Technology Fund and High Income Fund may invest
in the stock of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a Fund will be subject to Federal income tax on a portion
of any "excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Funds, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of such a
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options, Futures and Forward Contracts and Foreign Currencies
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses a Fund realizes
in connection therewith. Gains from the disposition of foreign currencies
(except certain gains that may be excluded by future regulations), and gains
from options, futures contracts and forward contracts derived by a Fund with
respect to its business of investing in securities or foreign currencies, will
qualify as permissible income under the Income Requirement. However, income
from the disposition of options, futures and forward contracts (other than those
on foreign currencies) will be subject to the Short-Short Limitation if they are
held for less than three months. Income from the disposition of foreign
currencies, and options, futures contracts and forward contracts thereon, that
are not directly related to a Fund's principal business of investing in
securities (or options and futures contracts with respect to securities) also
will be subject to the Short-Short Limitation if they are held for less than
three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gains (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of each Fund's hedging transactions. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures contracts and forward contracts and/or
foreign currency positions beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to qualify or continue to qualify
as a RIC.
Any income a Fund earns from writing options is treated as short-term
capital gains. If a Fund enters into a closing purchase transaction, it will
have short-term capital gains or losses based on the difference between the
premium it receives for the option it wrote and the premium it pays for the
option it buys. If an option written by a Fund lapses without being exercised,
the premium it received also will be a short-term capital gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. A Fund will not write so many options
that it could fail to qualify or continue to qualify as a RIC.
Certain options and futures in which the Funds may invest may be
"section 1256 contracts." Section 1256 contracts held by a Fund at the end of
its taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance are
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes. The
Fund may need to distribute any such gains to its shareholders to satisfy the
Distribution Requirement and/or avoid imposition of the Excise Tax even though
it may not have closed the transactions and received cash to pay the
distributions.
Code section 1092 (dealing with straddles) may also affect the taxation
of options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, that apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of the recognition of gains and
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences of
straddle transactions to the Funds are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
original issue discount ("OID"). As the holder of those securities, a Fund must
include in its income the OID that accrues on the securities during the taxable
year, even if the Fund receives no corresponding payment on the securities
during the year. Similarly, a Fund must include in its gross income securities
it receives as "interest" on payment-in-kind securities. Because each Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued OID and other non-cash income, in order to satisfy
the Distribution Requirement and to avoid imposition of the Excise Tax, a Fund
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gains. In addition, any such gains
may be realized on the disposition of securities held for less than three
months. Because of the Short-Short Limitation, any such gains would reduce a
Fund's ability to sell other securities, or certain options, futures contracts,
forward contracts or foreign currency positions, held for less than three months
that it might wish to sell in the ordinary course of its portfolio
management.
Municipal Bond Fund
The aggregate dividends excludable from the gross income of a Municipal
Bond Fund shareholder may not exceed the Fund's net tax-exempt income. If the
Fund's shares are sold at a loss after being held for six months or less, the
loss will be disallowed to the extent of any exempt-interest dividends received
on those shares. Tax-exempt interest attributable to certain private activity
bonds ("PABs") (including a proportionate part of the exempt-interest dividends
paid by the Fund attributable thereto) is subject to the alternative minimum
tax. Exempt-interest dividends received by a corporate shareholder also may be
indirectly subject to that tax without regard to whether the Fund's tax-exempt
interest was attributable to those PABs.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PABs or industrial development
bonds should consult their tax advisers before purchasing shares of the Fund
because, for users of certain of these facilities, the interest on such bonds is
not exempt from Federal income tax. For these purposes, the term "substantial
user" is defined generally to include a "non-exempt person" who regularly uses
in trade or business a part of a facility financed from the proceeds of PABs or
industrial development bonds.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Fund) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Fund still are
tax-exempt to the extent described in the Prospectus; they are only included in
the calculation of whether a recipient's income exceeds the established amounts.
If the Fund invests in any instruments that generate taxable income, under
the circumstances described in the Prospectus, distributions of the income
earned thereon will be taxable to the Fund's shareholders as ordinary income to
the extent of its earnings and profits. Moreover, if the Fund realizes capital
gains as a result of market transactions, any distribution of those gains will
be taxable to its shareholders. There also may be collateral Federal income tax
consequences regarding the receipt of exempt-interest dividends by shareholders
such as S corporations, financial institutions, and property and casualty
insurance companies. A shareholder falling into any such category should
consult its tax adviser concerning its investment in shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange for the purchase and sale of securities for the
portfolio of each Fund. With respect to Limited-Term Bond Fund, Municipal Bond
Fund and High Income Fund, many purchases are made directly from issuers or from
underwriters, dealers or banks. Purchases from underwriters include a
commission or concession paid by the issuer to the underwriter. Purchases from
dealers will include the spread between the bid and the asked prices.
Otherwise, transactions in securities other than those for which an exchange is
the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on relevant
factors, will implement the policy of the Fund to achieve "best execution"
(prompt and reliable execution at the best price obtainable) for reasonable and
competitive commissions. WRIMCO need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent with
the interests and policies of the Fund. Subject to review by the Board of
Directors, such policies include the selection of brokers which provide
execution and/or research services and or other services, including pricing or
quotation services, directly or through others ("brokerage services") considered
by WRIMCO to be useful or desirable for its investment management of the Fund
and/or the other funds and accounts over which WRIMCO or its affiliates have
investment discretion.
Such brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice, either
directly or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may
be higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations, WRIMCO may also consider sales of Fund shares as a
factor in the selection of broker-dealers to execute portfolio transactions. No
allocation of brokerage or principal business is made to provide any other
benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Corporation and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist
WRIMCO in making investment management decisions are used for administration or
other non-research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in a
Fund's portfolio or being considered for purchase.
The Corporation may also use its brokerage to pay for pricing or
quotation services to value securities.
The table below sets forth the brokerage commissions paid by each of the
Funds then in existence during the fiscal years ended March 31, 1997, 1996 and
1995. These figures do not include principal transactions or spreads or
concessions on principal transactions, i.e., those in which a Fund sells
securities to a broker-dealer firm or buys from a broker-dealer firm securities
owned by it.
1997 1996 1995
---- ----- -----
Total Return Fund $116,546 $ 84,002
Growth Fund 64,707 44,809
Limited-Term Bond Fund --- --- ---
Municipal Bond Fund 1,875 ---
International Growth Fund* 68,195 ---
Asset Strategy Fund 13,615**
-------- ------- -------
Total $264,938 $128,811
======== ======= =======
*Formerly Global Income Fund.
**For the period from April 20, 1995, the date of the initial public
offering, to 3/31/96.
Science and Technology Fund and High Income Fund had not commenced
operations prior to March 31, 1997.
The next table shows for each of the Funds the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution and the brokerage commissions paid during the
fiscal year ended March 31, 1997 for each of the Funds. These transactions were
allocated to these broker-dealers by the internal allocation procedures
described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Total Return Fund .................$113,247,996 $147,047
Growth Fund .............38,763,687 85,797
Limited-Term Bond Fund ............ --- ---
Municipal Bond Fund ............... --- ---
International Growth Fund ......... --- ---
Asset Strategy Fund ............... 6,726,219 12,027
---------- -------
Total .......................... $ $
========== =======
Science and Technology Fund and High Income Fund had not commenced
operations prior to March 31, 1997.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
The individual who manages a Fund may manage other advisory accounts with
similar investment objectives. It can be anticipated that WRIMCO will
frequently place concurrent orders for all or most accounts for which WRIMCO has
responsibility. Transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account. One or more of the
Funds and one or more of the funds in the United Group and TMK/United Funds,
Inc. or accounts over which Waddell & Reed Asset Management Company exercises
investment discretion frequently buy or sell the same securities at the same
time. If this happens, the amount of each purchase or sale is divided. This is
done on the basis of the amount of securities each fund or account wanted to buy
or sell. Sharing in large transactions could affect the price a Fund pays or
receives or the amount it buys or sells. However, sometimes a better negotiated
commission is available.
OTHER INFORMATION
General
The Corporation was organized on January 29, 1992. The name of
International Growth Fund (formerly Global Income Fund) was changed effective
April 20, 1995.
The Shares of the Funds
The shares of each of the Funds represents an interest in that Fund's
securities and other assets and in its profits or losses. Each fractional share
of a class has the same rights, in proportion, as a full share of that class.
Each Fund offers two classes of its shares: Class B and Class Y. Each
class of a Fund represents an interest in the same assets of the Fund and differ
as follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class B shares are
subject to a contingent deferred sales charge; Class Y shares are subject to an
ongoing distribution and service fee that differs in amount from that of the
Class B shares; each class may bear differing amounts of certain class-specific
expenses; and each class has a separate exchange privilege. The Funds do not
anticipate that there will be any conflicts between the interests of holders of
the different classes of shares of the same Fund by virtue of those classes. On
an ongoing basis, the Board of Directors will consider whether any such conflict
exists and, if so, take appropriate action. Each share of a Fund is entitled to
equal voting, dividend, liquidation and redemption rights, except that due to
the differing expenses borne by the two classes, dividends and liquidation
proceeds of Class B shares are expected to be lower than for Class Y shares of
the same Fund.
Each share of each Fund (regardless of class) is entitled to one vote. On
certain matters such as the election of Directors, all shares of the six Funds
vote together as a single class. On other matters affecting a particular Fund,
the shares of that Fund vote together as a separate class, such as with respect
to a change in an investment restriction of a particular Fund, except that as to
matters for which a separate vote of a class is required by the 1940 Act or
which affects the interests of one or more particular classes, the affected
shareholders vote as a separate class. In voting on a Management Agreement,
approval by the shareholders of a Fund is effective as to that Fund whether or
not enough votes are received from the shareholders of the other Funds to
approve the Management Agreement for the other Funds.
Initial Investment
On April 24, 1992, the Distributor purchased for investment 2,000 Class B
shares of each Fund (other than Asset Strategy Fund, Science and Technology Fund
and High Income Fund) at a net asset value of $10.00 per share.
On , the Distributor purchased for investment ______ Class B
shares of Asset Strategy Fund at a net asset value of $_____ per share.
On December 28, 1995, the Distributor purchased for investment Class
Y shares of each Fund (other than Science and Technology Fund and High Income
Fund) at a net asset value of $ per share.
On July 31, 1997, the Distributor purchased for investment Class B
shares and Class Y shares of Science and Technology Fund at a net asset
value of $10.00 per share.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.16%
Gap, Inc. (The) ........................ 110,500 $ 3,701,750
Apparel and Other Textile Products - 0.91%
Tommy Hilfiger Corporation* ............ 55,700 2,910,325
Building Materials and Garden Supplies - 0.71%
Home Depot, Inc. (The) ................. 42,200 2,257,700
Business Services _ 0.99%
Electronic Data Systems Corporation .... 59,700 2,410,388
Manpower Inc. .......................... 20,500 738,000
Total ................................. 3,148,388
Chemicals and Allied Products - 17.13%
Abbott Laboratories .................... 60,700 3,406,788
Air Products and Chemicals, Inc. ....... 63,500 4,310,062
Amgen Inc.* ............................ 55,400 3,102,400
Avon Products, Inc. .................... 27,500 1,443,750
BetzDearborn Inc. ...................... 44,400 2,802,750
Colgate-Palmolive Company .............. 33,100 3,297,588
Crompton & Knowles Corporation ......... 43,500 848,250
Dow Chemical Company (The) ............. 31,800 2,544,000
du Pont (E.I.) de Nemours and Company .. 55,200 5,851,200
Geon Company (The) ..................... 40,700 946,275
IMC Global, Inc. ....................... 30,400 1,098,200
Lilly (Eli) and Company ................ 37,000 3,043,250
Merck & Co., Inc. ...................... 38,700 3,260,475
PPG Industries, Inc. ................... 69,000 3,726,000
Pfizer Inc. ............................ 35,900 3,020,087
Praxair, Inc. .......................... 55,200 2,477,100
Procter & Gamble Company (The) ......... 33,100 3,806,500
Union Carbide Corporation .............. 48,300 2,137,275
Warner-Lambert Company ................. 38,600 3,338,900
Total ................................. 54,460,850
Communication - 1.31%
MCI Communications Corporation ......... 54,700 1,945,241
SBC Communications Inc. ................ 25,400 1,336,675
360. Communications Company* ........... 51,500 888,375
Total ................................. 4,170,291
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS(Continued)
Depository Institutions - 4.35%
BankAmerica Corporation ................ 27,600 $ 2,780,700
Chase Manhattan Corporation (The) ...... 30,500 2,855,562
Citicorp ............................... 30,400 3,290,800
First Bank System, Inc. ................ 27,600 2,014,800
Norwest Corporation .................... 62,500 2,890,625
Total ................................. 13,832,487
Electric, Gas and Sanitary Services - 0.32%
WMX Technologies, Inc. ................. 33,100 1,013,687
Electronic and Other Electric Equipment - 9.35%
AMP Incorporated ....................... 60,700 2,086,562
Analog Devices, Inc.* .................. 157,800 3,550,500
Emerson Electric Co. ................... 44,200 1,989,000
General Electric Company ............... 66,300 6,580,275
Harman International Industries,
Incorporated .......................... 7,980 267,330
Intel Corporation ...................... 68,900 9,581,372
LSI Logic Corporation* ................. 54,400 1,890,400
Molex Incorporated, Class A ............ 33,750 1,177,031
Rival Company (The) .................... 69,700 1,511,584
TRINOVA Corporation .................... 33,100 1,108,850
Total ................................. 29,742,904
Engineering and Management Services - 0.58%
Fluor Corporation ...................... 35,400 1,858,500
Food and Kindred Products - 1.85%
CPC International Inc. ................. 27,600 2,263,200
PepsiCo, Inc. .......................... 110,500 3,605,063
Total ................................. 5,868,263
Food Stores - 0.46%
Kroger Co. (The)* ...................... 29,000 1,471,750
Forestry - 1.12%
Georgia-Pacific Corporation ............ 23,500 1,703,750
Weyerhaeuser Company ................... 41,400 1,847,475
Total ................................. 3,551,225
Furniture and Home Furnishings Stores - 0.87%
Circuit City Stores, Inc. .............. 83,200 2,776,800
General Building Contractors - 0.29%
Pulte Corporation ...................... 31,100 909,675
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS(Continued)
General Merchandise Stores - 4.06%
Dayton Hudson Corporation .............. 75,800 $ 3,164,650
Federated Department Stores, Inc.* ..... 45,900 1,508,963
Kmart Corporation* ..................... 223,200 2,706,300
May Department Stores Company (The) .... 55,200 2,511,600
Wal-Mart Stores, Inc. .................. 108,600 3,027,225
Total ................................. 12,918,738
Health Services - 1.61%
Columbia/HCA Healthcare Corporation .... 68,000 2,286,500
Tenet Healthcare Corporation* .......... 55,200 1,359,300
Vencor, Incorporated* .................. 38,600 1,461,975
Total ................................. 5,107,775
Heavy Construction, Excluding Building - 0.25%
Foster Wheeler Corporation ............. 22,100 781,788
Industrial Machinery and Equipment - 14.22%
AGCO Corporation ....................... 158,200 4,370,275
Applied Materials, Inc.* ............... 91,300 4,228,286
Case Corporation ....................... 62,200 3,156,650
Caterpillar Inc. ....................... 72,500 5,818,125
cisco Systems, Inc.* ................... 88,200 4,250,093
Compaq Computer Corporation* ........... 19,900 1,524,837
Deere & Company ........................ 108,800 4,732,800
Eaton Corporation ...................... 27,600 1,956,150
Harnischfeger Industries, Inc. ......... 65,500 3,045,750
Hewlett-Packard Company ................ 46,900 2,497,425
Ingersoll-Rand Company ................. 22,100 964,112
International Business Machines Corporation 17,100 2,349,113
New Holland NV* ........................ 70,700 1,573,075
Parker Hannifin Corporation ............ 33,100 1,415,025
United Technologies Corporation ........ 44,200 3,326,050
Total ................................. 45,207,766
Instruments and Related Products - 2.53%
General Motors Corporation, Class H .... 9,700 526,225
Guidant Corporation .................... 53,500 3,290,250
Medtronic, Inc. ........................ 44,200 2,751,450
Xerox Corporation ...................... 25,700 1,461,687
Total ................................. 8,029,612
Insurance Carriers - 2.18%
Aetna Inc. ............................. 38,500 3,306,188
Oxford Health Plans Inc.* .............. 62,000 3,630,844
Total ................................. 6,937,032
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS(Continued)
Miscellaneous Manufacturing Industries - 1.01%
Armstrong World Industries, Inc. ....... 49,700 $ 3,218,075
Miscellaneous Retail - 0.18%
OfficeMax, Inc.* ....................... 43,875 570,375
Motion Pictures - 0.89%
Walt Disney Company (The) .............. 38,700 2,825,100
Nondepository Institutions - 2.53%
Federal Home Loan Mortgage Corporation . 159,200 4,338,200
Fannie Mae ............................. 102,600 3,706,425
Total ................................. 8,044,625
Paper and Allied Products - 0.43%
International Paper Company ............ 35,400 1,376,175
Petroleum and Coal Products - 2.35%
Mobil Corporation ...................... 22,600 2,952,125
Royal Dutch Petroleum Company .......... 16,600 2,905,000
Tosco Corporation ...................... 56,700 1,615,950
Total ................................. 7,473,075
Prepackaged Software _ 2.76%
Computer Associates International,
Inc. .................................. 31,100 1,209,013
Microsoft Corporation* ................. 44,200 4,052,565
Oracle Systems Corporation* ............ 91,100 3,512,998
Total ................................. 8,774,576
Primary Metal Industries - 0.77%
Aluminum Company of America ............ 35,900 2,441,200
Railroad Transportation - 0.49%
Union Pacific Corporation .............. 27,600 1,566,300
Rubber and Miscellaneous Plastics Products - 0.91%
Goodyear Tire & Rubber Company (The) ... 55,200 2,884,200
Special Trade Contractors - 1.18%
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 110,500 3,736,226
Transportation by Air - 0.86%
AMR Corporation* ....................... 22,100 1,823,250
Southwest Airlines Co. ................. 35,000 774,375
US Airways Group, Inc.* ................. 5,000 122,500
Total ................................. 2,720,125
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS(Continued)
Transportation Equipment - 5.84%
AlliedSignal Inc. ...................... 38,700 $ 2,757,375
Boeing Company (The) ................... 35,100 3,461,737
Chrysler Corporation ................... 121,500 3,645,000
Dana Corporation ....................... 42,000 1,380,750
General Motors Corporation ............. 55,200 3,056,700
Northrop Grumman Corporation ........... 46,700 3,531,688
Sundstrand Corporation ................. 17,200 746,050
Total ................................. 18,579,300
Wholesale Trade -- Durable Goods - 0.56%
Motorola, Inc. ......................... 29,600 1,787,100
Wholesale Trade -- Nondurable Goods - 2.81%
Gillette Company (The) ................. 103,200 7,494,900
Safeway Inc.* .......................... 31,200 1,446,900
Total ................................. 8,941,800
TOTAL COMMON STOCKS - 89.82% $285,595,558
(Cost: $217,306,032)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Communication - 0.60%
NYNEX Corp.,
5.58%, 4-22-97 ........................ $1,905 1,898,799
Depository Institutions - 0.57%
U.S. Bancorp,
Master Note ........................... 1,825 1,825,000
Food and Kindred Products - 0.17%
General Mills, Inc.,
Master Note ........................... 548 548,000
Insurance Agents, Brokers and Service - 1.10%
Aon Corp.,
5.36%, 5-12-97 ........................ 3,500 3,478,635
Nondepository Institutions - 3.58%
Island Finance Puerto Rico Inc.,
5.26%, 4-10-97 ........................ 5,865 5,857,288
Whirlpool Financial Corp.,
5.43%, 4-16-97 ........................ 5,545 5,532,454
Total ................................. 11,389,742
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Petroleum and Coal Products - 0.98%
Kerr-McGee Credit Corp.,
5.7%, 4-22-97 ......................... $3,135 $ 3,124,576
Security and Commodity Brokers - 1.41%
Merrill Lynch & Co., Inc.,
5.27%, 4-15-97 ........................ 4,485 4,475,808
Textile Mill Products - 0.47%
Sara Lee Corporation,
Master Note ........................... 1,492 1,492,000
Transportation Equipment - 1.71%
Echlin, Inc.,
5.37%, 5-9-97 ......................... 5,465 5,434,023
TOTAL SHORT-TERM SECURITIES - 10.59% $ 33,666,583
(Cost: $33,666,583)
TOTAL INVESTMENT SECURITIES - 100.41% $319,262,141
(Cost: $250,972,615)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.41%) (1,304,965)
NET ASSETS - 100.00% $317,957,176
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS
Business Services _ 20.89%
America Online, Inc.* .................. 160,000 $ 6,780,000
CKS Group, Inc.* ....................... 150,000 3,103,050
CUC International Inc.* ................ 150,000 3,375,000
CompuServe Corporation* ................ 200,000 1,962,400
FactSet Research Systems, Inc.* ........ 175,000 3,390,625
HBO & Company .......................... 55,900 2,658,716
HCIA Inc.* ............................. 70,000 1,168,090
Health Management Systems, Inc.* ...... 84,400 553,833
IMNET Systems, Inc.* ................... 100,000 1,481,200
Mecon, Inc.* ........................... 120,000 438,720
PHAMIS, Inc.* .......................... 110,000 1,980,000
Parametric Technology Corporation* ..... 130,000 5,858,060
SCB Computer Technology, Inc.* ......... 150,000 2,512,500
Shared Medical Systems Corporation ..... 100,000 4,662,500
Synopsys, Inc.* ........................ 60,000 1,503,720
Total ................................. 41,428,414
Chemicals and Allied Products - 1.16%
Watson Pharmaceuticals Inc.* ........... 64,500 2,297,812
Communication - 6.80%
COLT Telecom Group plc, ADR* ........... 75,000 1,439,025
Cincinnati Bell Inc. ................... 50,000 2,825,000
Intermedia Communications of
Florida, Inc.* ........................ 150,000 2,475,000
360. Communications Company* ........... 200,000 3,450,000
WorldCom Inc.* ......................... 150,000 3,290,550
Total ................................. 13,479,575
Electronic and Other Electric Equipment - 2.23%
Ascend Communications, Inc.* ........... 50,000 2,040,600
Atmel Corporation* ..................... 100,000 2,393,700
Total ................................. 4,434,300
Engineering and Management Services - 1.20%
Transition Systems, Inc.* .............. 200,000 2,375,000
Food and Kindred Products - 1.16%
Tootsie Roll Industries, Inc. .......... 51,500 2,311,063
Furniture and Home Furnishings Stores - 0.71%
Williams-Sonoma, Inc.* ................ 48,750 1,401,562
Health Services - 6.41%
American Healthcorp, Inc.* ............. 200,000 2,237,400
Physicians Resource Group, Inc.* ....... 200,000 2,650,000
Quorum Health Group, Inc.* ............. 100,000 3,093,700
Vencor, Incorporated* .................. 125,000 4,734,375
Total ................................. 12,715,475
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS (Continued)
Hotels and Other Lodging Places - 1.23%
Vail Resorts, Inc.* .................... 125,500 $ 2,447,250
Industrial Machinery and Equipment - 1.85%
Franklin Electronic Publishers, Inc.* .. 150,000 1,762,500
Tractor Supply Company* ................ 100,000 1,912,500
Total ................................. 3,675,000
Instruments and Related Products - 8.07%
DePuy, Inc.* ........................... 150,000 3,281,250
LUNAR CORPORATION* ..................... 100,000 3,400,000
St. Jude Medical, Inc.* ................ 100,000 3,337,500
STERIS Corporation* .................... 150,000 3,665,550
Target Therapeutics, Inc.* ............. 35,000 2,314,375
Total ................................. 15,998,675
Insurance Agents, Brokers and Services - 1.13%
CRA Managed Care, Inc.* ................ 60,000 2,235,000
Insurance Carriers - 1.92%
United HealthCare Corporation .......... 80,000 3,810,000
Miscellaneous Manufacturing Industries - 4.14%
Blyth Industries, Inc.* ................ 111,900 4,042,388
Tiffany & Co. .......................... 110,000 4,180,000
Total ................................. 8,222,388
Miscellaneous Retail - 0.77%
Books-A-Million, Inc.* ................. 15,300 73,624
MSC Industrial Direct Co., Inc.* ....... 50,000 1,456,250
Total ................................. 1,529,874
Personal Services - 3.30%
Block (H&R), Inc. ...................... 60,000 1,762,500
Equity Corporation International* ...... 225,000 4,781,250
Total ................................. 6,543,750
Prepackaged Software - 9.21%
BMC Software, Inc.* .................... 50,000 2,303,100
Broderbund Software, Inc.* ............. 100,000 2,175,000
Cerner Corporation* .................... 150,000 1,950,000
Dendrite International, Inc.* .......... 150,000 1,425,000
Expert Software, Inc.* ................. 150,000 318,750
GT Interactive Software Corp.* ......... 60,000 431,220
HPR Inc.* .............................. 160,000 1,780,000
Intuit Inc.* ........................... 175,000 4,046,875
Medic Computer Systems, Inc.* .......... 200,000 3,212,400
Premenos Technology Corp.* ............. 100,000 625,000
Total ................................. 18,267,345
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS (Continued)
Real Estate - 2.13%
Stewart Enterprises, Inc., Class A ..... 116,100 $ 4,223,137
Stone, Clay and Glass Products - 2.31%
Department 56, Inc.* ................... 150,000 2,606,250
Gentex Corporation* .................... 100,000 1,981,200
Total ................................. 4,587,450
Trucking and Warehousing - 0.56%
Heartland Express, Inc.* ............... 57,733 1,111,360
Wholesale Trade -- Durable Goods - 1.63%
OmniCare, Inc. ......................... 137,600 3,233,600
TOTAL COMMON STOCKS - 78.81% $156,328,030
(Cost: $153,885,493)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 2.16%
BOC Group PLC (The),
5.34%, 4-7-97 ......................... $4,290 4,286,182
Communication - 2.17%
NYNEX Corp.,
5.58%, 4-22-97 ........................ 4,325 4,310,922
Depository Institutions - 0.11%
U.S. Bancorp,
Master Note ........................... 213 213,000
Electric, Gas and Sanitary Services - 3.92%
Carolina Power & Light Co.,
5.32%, 4-10-97 ........................ 7,780 7,769,653
Food and Kindred Products - 1.34%
General Mills, Inc.,
Master Note ........................... 46 46,000
Hercules Inc.,
5.65%, 4-21-97 ........................ 2,615 2,606,792
Total ................................. 2,652,792
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Insurance Agents, Brokers and Service - 2.19%
Aon Corp.,
5.47%, 4-18-97 ........................ $4,360 $ 4,348,738
Insurance Carriers - 1.63%
USAA Capital Corp.,
5.28%, 4-29-97 ........................ 3,250 3,236,653
Metal Mining - 1.92%
BHP Finance (USA) Inc.,
5.32%, 4-4-97 ......................... 3,820 3,818,306
Petroleum and Coal Products - 2.42%
Kerr-McGee Credit Corp.,
5.7%, 4-22-97 ......................... 4,820 4,803,974
Textile Mill Products - 0.01%
Sara Lee Corporation,
Master Note ........................... 13 13,000
Total Commercial Paper - 17.87% 35,453,220
Municipal Obligations - 2.15%
California
Oakland-Alameda County Coliseum Lease Revenue
Bonds (Oakland Coliseum Project), 1995 Series
B-1 (Canadian Imperial Bank of Commerce),
5.42%, 4-10-97 ........................ 4,255 $ 4,255,000
TOTAL SHORT-TERM SECURITIES - 20.02% $ 39,708,220
(Cost: $39,708,220)
TOTAL INVESTMENT SECURITIES - 98.83% $196,036,250
(Cost: $193,593,713)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.17% 2,315,460
NET ASSETS - 100.00% $198,351,710
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS AND WARRANTS
Argentina - 1.79%
Capex S.A., Class A (A) ................ 50,000 $ 500,000
Disco S.A., Sponsored ADR* ............. 12,500 407,813
Total ................................. 907,813
Australia - 0.92%
Westpac Banking Corporation Limited (A) 80,000 464,069
Denmark - 0.95%
Sydbank A/S (A) ........................ 10,000 483,160
Finland - 1.96%
Nokia Corporation, Series K (A) ........ 7,000 417,743
TT Tieto Oy [Class B] (A) .............. 7,000 576,149
Total ................................. 993,892
France - 13.31%
Accor S.A. (A) ......................... 2,400 349,666
Banque Nationale de Paris (A) .......... 13,000 579,090
Business Objects S.A., ADR* ............ 30,000 296,250
Cap Gemini Sogeti S.A. (A)* ............ 10,000 608,068
Chargeurs International S.A. (A)* ...... 6,000 373,925
Cofidur (A)* ........................... 9,683 410,465
Compagnie Generale des Eaux (A) ........ 2,500 340,636
Elf Aquitaine S.A. (A) ................. 4,000 411,078
GEA Grenobloise d'Electronique et
d'Automatismes (A) .................... 10,000 600,232
Generale de Geophysique S.A. (A)* ...... 4,500 406,358
Group Axime (A)* ....................... 4,000 474,486
Rhone-Poulenc S.A. (A)* ................ 20,000 677,888
Societe Generale (A) ................... 4,000 468,786
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 1,500 300,027
Union Financiere de France Banque S.A. (A) 4,044 449,453
Total ................................. 6,746,408
Germany - 4.99%
CKAG Colonia Konzern AG (A) ............. 4,000 376,499
Daimler-Benz AG (A)* .................... 9,500 759,772
eff-eff Fritz Fuss GmbH & Co. (A) ...... 5,000 215,827
IVG Holding AG (A) ..................... 9,000 311,871
Plettac AG (A) ......................... 2,000 432,854
Rofin-Sinar Technologies Inc. (A)* ..... 30,000 431,250
Total ................................. 2,528,073
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS AND WARRANTS (Continued)
Hong Kong - 5.59%
China Travel International Investment
Hong Kong Limited (A) ................. 670,000 $ 322,082
GZI Transport Limited, Warrants (A)* ... 130,000 23,152
Guangdong Corporation Limited (A) ...... 484,000 415,368
Guangdong Tannery Ltd. (A)* ............ 24,200 7,105
Guangnan Holdings Limited (A) .......... 250,000 324,244
HSBC Holdings plc (A) .................. 25,000 580,735
Hysan Development Company Limited (A) .. 80,000 239,521
JCG Holdings Ltd. (A) .................. 280,000 220,421
National Mutual Asia Ltd. (A) .......... 300,000 313,597
Tingyi (Cayman Islands) Holding Corp.(A)* 1,776,000 387,343
Total ................................. 2,833,568
Indonesia - 2.31%
PT Bank NISP, F (A)* ................... 840,000 384,860
Pt Steady Safe Transportation
Service, F (A) ........................ 283,333 336,335
Pt United Tractors, F (A) .............. 150,000 449,836
Total ................................. 1,171,031
Israel - 0.45%
Check Point Software Technologies Ltd.* 11,000 226,875
Italy - 1.51%
Industrie Natuzzi S.p.A., ADR .......... 20,000 477,500
STET - Societa Financiaria
Telefonica p.a. (A) ................... 80,000 289,382
Total ................................. 766,882
Japan - 3.93%
Daiichi Corporation (A) ................ 10,000 145,608
Eisai Co., Ltd. (A) .................... 15,000 257,240
NEC Corporation (A) .................... 30,000 339,751
Nintendo Corp., Ltd. (A) ............... 6,000 430,998
Promise Co., Ltd. (A) .................. 6,500 272,367
Tokyo Electron Limited (A) ............. 16,500 547,242
Total ................................. 1,993,206
Malaysia - 0.83%
Multi-Purpose Hldgs Bhd(#) (A) ......... 200,000 419,778
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMEN4TS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS AND WARRANTS (Continued)
Mexico - 2.62%
Corporacion Industrial Sanluis, S.A.
de C.V., CPO (A) ...................... 29,500 $ 177,542
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS* .................... 10,000 158,750
Gruma, S.A., Class B (A)* .............. 61,326 299,151
Grupo Financiero Inbursa, S.A. de
C.V., Class B (A) ..................... 80,000 282,800
Grupo Radio Centro, S.A. de C.V., ADR .. 10,000 86,250
Grupo Televisa, S.A., GDR* ............. 13,000 323,375
Total ................................. 1,327,868
Netherlands - 8.66%
Cap Gemini Sogeti S.A. (A)* ............ 15,000 544,029
Fugro N.V. (A) ......................... 40,000 853,379
Getronics N.V. (A) ..................... 15,000 488,026
Internatio-Muller N.V. (A) ............. 18,000 550,109
Koninklijke Boskalis Westminster
N.V. (A) .............................. 30,000 598,432
Koninklijke Pakhoed NV (A) ............. 15,000 503,227
Ordina Beheer N.V. (A)* ................ 7,500 522,028
Qiagen N.V., ADR* ...................... 10,000 331,250
Total ................................. 4,390,480
Norway - 3.16%
Blom ASA (A) ........................... 15,000 549,765
Merkantildata A/S (A) .................. 25,000 565,602
Schibsted AS (A) ....................... 24,000 485,061
Total ................................. 1,600,428
Philippines - 1.13%
Belle Corporation (A)* ................. 1,000,000 318,786
Filinvest Development Corporation (A) .. 900,000 256,167
Total ................................. 574,953
Portugal - 0.72%
Portugal Telecom, S.A.,
Ordinary Shares, ADS .................. 10,000 367,500
Singapore - 0.79%
Uraco Holdings Limited (A) ............. 650,000 402,595
Spain - 2.39%
Abengoa, S.A. (A)* ..................... 13,113 473,360
Sociedad General de Aquas de
Barcelona, S.A. (A) ................... 10,000 375,141
Tele Pizza, S.A. (A)* .................. 8,354 363,654
Total ................................. 1,212,155
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS AND WARRANTS (Continued)
Sweden - 6.95%
Astra AB, Class A (A) .................. 10,000 484,218
Biacore International AB, ADR* ......... 15,000 273,750
Biora AB (A)* .......................... 40,000 422,445
Bure Investment AB (A) ................. 20,000 260,375
Celsius Industrier AB, Class B (A)* .... 7,000 134,372
Diligentia AB (A)* ..................... 9,000 104,615
Enator AB (A)* ......................... 12,500 297,239
Frontec AB, Class B (A)* ............... 16,000 161,539
Kinnevik AB, Series B (A) .............. 6,000 168,181
Medical Invest Svenska AB (A)* ......... 16,600 584,383
Skandia Group Insurance
Company Ltd. (A) ...................... 20,000 631,011
Total ................................. 3,522,128
Switzerland - 9.65%
The Ares-Serono Group, Class B (A) ..... 600 789,990
Brauerei Eichhof AG (A) ................ 120 246,090
Choco Lindt & Spru AG, Registered (A) .. 20 386,514
Ciba Specialty Chemicals Holding Inc.* . 501 41,445
Credit Suisse Group, Registered
Shares (A) ............................ 10,000 1,201,251
Novartis AG (A)* ....................... 501 622,027
SMH Swiss Corporation (A) .............. 760 422,663
Swisslog Holding AG (A)* ............... 2,000 709,072
Zurich Insurance Company (A) ........... 1,500 472,367
Total ................................. 4,891,419
Taiwan - 1.13%
Want Want Holdings Ltd.* ............... 200,000 574,000
Thailand - 1.01%
Srithai Superware Public Company
Limited, F (A) ........................ 102,300 511,894
United Kingdom - 13.49%
Avis Europe PLC (A)* ................... 250,000 542,916
Corporate Services Group plc (A) ....... 225,000 740,340
Dr Solomon's Group PLC, ADR* ........... 42,500 935,000
Freepages Group plc (A)* ............... 1,000,000 751,856
Hays plc (A) ........................... 60,000 537,980
JBA Holdings plc (A) .................... 44,000 528,438
Johnson Matthey plc (A) ................ 30,000 269,730
Michael Page Group plc (A) ............. 60,000 531,070
Misys plc (A) .......................... 30,000 616,950
Professional Staff plc, ADR* ........... 65,000 568,750
Tomkins plc (A) ........................ 80,000 357,995
Vodafone Group Plc (A) ................. 100,000 458,188
Total ................................. 6,839,213
TOTAL COMMON STOCKS AND WARRANTS - 90.24% $45,749,388
(Cost: $41,064,648)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Shares Value
PREFERRED STOCKS
Brazil - 3.09%
Telebras S.A., ADR ..................... 5,000 $ 511,875
Telecomunicacoes de Sao Paulo S.A. ..... 2,500,000 635,453
Telecomunicacoes do Rio de
Janeiro S.A.* ......................... 3,000,000 416,706
Total ................................. 1,564,034
Germany - 1.67%
Marschollek, Lautenschlager und
Partner AG (A) ........................ 2,500 524,580
Moebel Walther AG (A) .................. 6,000 323,741
Total ................................. 848,321
TOTAL PREFERRED STOCKS - 4.76% $ 2,412,355
(Cost: $2,112,409)
Principal
Amount in
Thousands
OTHER GOVERNMENT SECURITY - 0.31%
Australia
Queensland Treasury Corporation,
12.0%, 5-15-97 (B) .................... $A200 $ 157,813
(Cost: $146,778)
Face
Amount in
Thousands
UNREALIZED GAIN ON OPEN FORWARD CURRENCY CONTRACTS - 0.15%
Deutsche Marks, 4-21-97 (B) ............ DM1,458 24,523
Swiss Francs, 4-21-97 (B) .............. SFr1,680 49,265
Total ................................. $ 73,788
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Depository Institutions - 4.01%
U.S. Bancorp,
Master Note ........................... $2,032 2,032,000
Food and Kindred Products - 4.17%
General Mills, Inc.,
Master Note ........................... 2,115 2,115,000
Textile Mill Products - 2.57%
Sara Lee Corporation,
Master Note ........................... 1,305 1,305,000
TOTAL SHORT-TERM SECURITIES - 10.75% $ 5,452,000
(Cost: $5,452,000)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1997
Value
TOTAL INVESTMENT SECURITIES - 106.21% $53,845,344
(Cost: $48,775,835)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (6.21%) (3,145,997)
NET ASSETS - 100.00% $50,699,347
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS
Business Services _ 2.53%
Adaptec Inc.* .......................... 4,900 $ 174,866
First Data Corporation ................. 3,200 108,400
Red Brick Systems, Inc.* ............... 4,300 59,392
Total ................................. 342,658
Chemicals and Allied Products - 6.80%
IMC Global, Inc. ....................... 8,500 307,063
Nalco Chemical Company ................. 10,600 396,175
Praxair, Inc. .......................... 4,800 215,400
Total ................................. 918,638
Communication - 9.54%
Cox Communications, Inc.* .............. 16,000 330,000
Nokia Corporation, Series A, ADS ....... 8,500 495,125
SBC Communications Inc. ................ 4,300 226,287
360. Communications Company* ........... 13,800 238,050
Total ................................. 1,289,462
Electric, Gas and Sanitary Services - 1.90%
Sonat Inc. ............................. 4,700 256,150
Food and Kindred Products - 2.26%
Seagram Company Ltd. (The) ............. 8,000 306,000
Furniture and Fixtures - 0.67%
Lear Corporation* ...................... 2,700 90,112
General Merchandise Stores - 3.70%
Federated Department Stores, Inc.* ..... 8,000 263,000
May Department Stores Company (The) .... 5,200 236,600
Total ................................. 499,600
Health Services - 2.04%
Living Centers of America, Inc.* ....... 8,000 276,000
Heavy Construction, Excluding Building - 2.04%
Koninklijke Boskalis Westminster N.V. (A) 13,812 275,518
Holding and Other Investment Offices - 1.78%
LTC Properties, Inc. ................... 14,500 241,062
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1997
Shares Value
COMMON STOCKS (Continued)
Industrial Machinery and Equipment - 5.64%
AGCO Corporation ....................... 4,100 $ 113,262
Case Corporation ....................... 4,800 243,600
Harnischfeger Industries, Inc. ......... 3,000 139,500
Integrated Process Equipment Corp.* ..... 8,800 147,946
New Holland NV ......................... 5,300 117,925
Total ................................. 762,233
Instruments and Related Products - 2.41%
General Motors Corporation, Class H .... 6,000 325,500
Personal Services - 1.93%
Equity Corporation International* ...... 12,300 261,375
Petroleum and Coal Products - 5.13%
Mobil Corporation ...................... 1,800 235,125
Royal Dutch Petroleum Company .......... 1,300 227,500
Tosco Corporation ...................... 8,100 230,850
Total ................................. 693,475
Prepackaged Software _ 3.04%
Maxis, Inc.* ........................... 25,000 182,800
Oracle Systems Corporation* ............ 5,900 227,516
Total ................................. 410,316
Textile Mill Products - 1.19%
Polymer Group, Inc. * .................. 12,100 160,325
Transportation by Air - 2.56%
Delta Air Lines, Inc. .................. 1,400 117,775
Southwest Airlines Co. ................. 10,300 227,888
Total ................................. 345,663
Transportation Equipment - 1.73%
Sundstrand Corporation ................. 5,400 234,225
TOTAL COMMON STOCKS - 56.89% $ 7,688,312
(Cost: $8,037,016)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 2.49%
Trump Atlantic City Associates,
11.25%, 5-1-2006 ...................... $370 336,700
Chemicals and Allied Products - 2.15%
The BOC Group, Inc.,
5.875%, 1-29-2001 ..................... 300 290,124
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions - 4.42%
Banco de Inversion y Comercio Exterior S.A.,
9.375%, 12-27-2000 (C) ................ $300 $ 302,439
Banco Nacional de Comercio Exterior, S.N.C.,
7.5%, 7-1-2000 ........................ 300 294,150
Total ................................. 596,589
Electric, Gas and Sanitary Services - 2.28%
Compania de Transporte de Energia Electrica
en Alta Tension TRANSENER Sociedad Anonima,
9.625%, 7-15-99 (C) ................... 300 308,250
Electronic and Other Electric Equipment - 1.40%
VLSI Technology, Inc., Convertible,
8.25%, 10-1-2005 ...................... 200 189,376
Food and Kindred Products - 2.07%
Coca-Cola Bottling Co. Consolidated,
6.85%, 11-1-2007 ...................... 300 279,468
Paper and Allied Products - 3.00%
Buckeye Cellulose Corporation,
9.25%, 9-15-2008 ...................... 400 406,000
Primary Metal Industries - 2.23%
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 (C) ................ 300 301,500
Printing and Publishing - 2.44%
Viacom International, Inc.,
9.125%, 8-15-99 ....................... 325 329,875
TOTAL CORPORATE DEBT SECURITIES - 22.48% $ 3,037,882
(Cost: $3,112,022)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
FOREIGN GOVERNMENT SECURITIES
Argentina - 2.26%
The Republic of Argentina,
9.25%, 2-23-2001 ...................... $300 $ 306,000
Mexico - 2.11%
United Mexican States,
6.97%, 8-12-2000 ...................... 300 284,619
TOTAL FOREIGN GOVERNMENT SECURITIES - 4.37% $ 590,619
(Cost: $589,343)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.125%, 5-31-97 ....................... 850 850,527
7.25%, 2-15-98 ........................ 60 60,582
7.125%, 2-29-2000 ..................... 60 60,806
7.5%, 2-15-2005 ....................... 60 62,072
9.125%, 5-15-2018 ..................... 500 601,875
TOTAL UNITED STATES GOVERNMENT SECURITIES - 12.11% $ 1,635,862
(Cost: $1,715,797)
TOTAL SHORT-TERM SECURITIES - 2.40% $ 324,000
(Cost: $324,000)
TOTAL INVESTMENT SECURITIES - 98.25% $13,276,675
(Cost: $13,778,178)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.75% 237,031
NET ASSETS - 100.00% $13,513,706
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 2.85%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... $500 $ 510,195
Communication - 2.91%
GTE Corporation,
8.85%, 3-1-98 ......................... 510 520,837
Depository Institutions - 6.66%
First Chicago Corporation,
7.625%, 1-15-2003 ..................... 600 609,702
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 558 580,214
Total ................................. 1,189,916
Food and Kindred Products - 1.35%
ConAgra, Inc.,
9.75%, 11-1-97 ........................ 236 240,758
General Merchandise Stores - 6.89%
Dillard Department Stores, Inc.,
8.75%, 6-15-98 ........................ 200 204,806
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 505 514,817
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 511,645
Total ................................. 1,231,268
Industrial Machinery and Equipment - 2.88%
Tenneco Inc.,
8.2%, 11-15-99 ........................ 500 514,370
Instruments and Related Products - 4.01%
Baxter International Inc.,
8.125%, 11-15-2001 .................... 350 360,189
Polaroid Corporation,
8.0%, 3-15-99 ......................... 350 357,045
Total ................................. 717,234
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 11.71%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ $500 $ 516,215
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 500 502,305
Ford Motor Credit Company,
4.3%, 7-15-98 ......................... 24 24,380
General Motors Acceptance Corporation:
6.375%, 9-23-97 ....................... 50 50,069
7.75%, 1-15-99 ........................ 500 508,210
Norwest Financial, Inc.,
6.2%, 9-15-99 ......................... 500 492,685
Total ................................. 2,093,864
Personal Services - 2.74%
Service Corporation International,
6.375%, 10-1-2000...................... 500 489,040
Petroleum and Coal Products - 4.15%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 520 538,762
Phillips Petroleum Company,
9.5%, 11-15-97 ........................ 200 203,408
Total ................................. 742,170
Railroad Transportation - 2.86%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 500 511,410
Security and Commodity Brokers - 6.09%
Merrill Lynch & Co., Inc.,
6.0%, 1-15-2001........................ 600 579,114
Salomon Inc.,
7.75%, 5-15-2000....................... 500 509,105
Total ................................. 1,088,219
Textile Mill Products - 2.86%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 500 511,635
Transportation by Air - 2.93%
Federal Express Corporation,
10.0%, 9-1-98 ......................... 500 522,725
TOTAL CORPORATE DEBT SECURITIES - 60.89% $10,883,641
(Cost: $11,014,208)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 2.46%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.),
7.25%, 11-15-2002 ..................... $440 $ 439,450
(Cost: $440,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
5.5%, 4-15-2013 ....................... 68 67,752
5.5%, 9-15-2013 ....................... 1 1,104
6.4%, 2-15-2018 ....................... 250 244,608
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 348 333,155
5.0%, 12-25-2001 ...................... 38 37,361
7.95%, 3-7-2005 ....................... 500 504,765
8.0%, 2-1-2008 ........................ 240 243,919
6.0%, 1-1-2009 ........................ 293 275,099
6.0%, 2-1-2009 ........................ 296 278,479
6.5%, 12-1-2010 ....................... 671 645,348
6.0%, 1-1-2011 ........................ 546 513,192
6.5%, 2-1-2011 ........................ 556 534,896
7.0%, 5-1-2011 ........................ 468 459,903
7.0%, 7-1-2011 ........................ 472 464,091
7.0%, 9-25-2020 ....................... 33 32,575
7.0%, 4-1-2026 ........................ 491 469,052
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 230 221,906
7.0%, 7-15-2010 ....................... 450 444,093
TOTAL UNITED STATES GOVERNMENT SECURITIES - 32.29% $5,771,298
(Cost: $5,957,050)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1997
Value
TOTAL SHORT-TERM SECURITIES - 3.76% $ 673,000
(Cost: $673,000)
TOTAL INVESTMENT SECURITIES - 99.40% $17,767,389
(Cost: $18,084,258)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.60% 107,650
NET ASSETS - 100.00% $17,875,039
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ARIZONA - 0.75%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ $ 270 $ 273,375
ARKANSAS - 3.95%
City of Blytheville, Arkansas, Solid Waste
Recycling and Sewage Treatment Revenue
Bonds (Nucor Corporation Project), Series 1992,
6.9%, 12-1-2021 ....................... 1,000 1,055,000
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 392,000
Total ................................. 1,447,000
CALIFORNIA - 3.58%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (D) .................... 2,000 1,310,000
COLORADO - 2.79%
City and County of Denver, Colorado, Special
Facilities Airport Revenue Bonds (United
Air Lines Project), Series 1992A,
6.875%, 10-1-2032 ..................... 1,000 1,022,500
DISTRICT OF COLUMBIA - 1.96%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... 750 718,125
GUAM - 0.68%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 250,625
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
ILLINOIS - 1.11%
Illinois Development Finance Authority,
Local Government Program Revenue Bonds,
Series 1993 (Village of Maywood Project),
6.0%, 1-1-2008 ........................ $ 400 $ 405,000
INDIANA - 5.11%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 1,500 1,494,375
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 377,500
Total ................................. 1,871,875
IOWA - 0.93%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 341,700
LOUISIANA - 0.58%
Parish of St. Charles, State of Louisiana,
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 214,000
MARYLAND - 7.41%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 932,500
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A,
6.2%, 7-1-2010 ........................ 665 673,313
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-2022 ..................... 650 632,125
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-2013 ....................... $ 500 $ 477,500
Total ................................. 2,715,438
MICHIGAN - 2.52%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 923,750
MISSOURI - 0.70%
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 254,688
MONTANA - 3.99%
Montana Health Facility Authority, Health Care
Revenue Bonds, Series 1996 (Community Medical
Center, Inc.),
6.375%, 6-1-2018 ...................... 1,500 1,460,625
NEBRASKA - 1.36%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-SA,
6.2%, 6-1-2013 ........................ 500 497,500
NEVADA - 2.59%
West Wendover Recreation District, Elko
County, Nevada, General Obligation
(Limited Tax), Recreational Facilities
and Refunding Bonds, Series 1996,
6.25%, 12-1-2021 ...................... 950 947,625
NEW JERSEY - 4.18%
New Jersey Economic Development Authority,
Economic Development Refunding Bonds (Preston
Trucking Company, Inc. - 1996 Project),
6.5%, 9-1-2014 ........................ 1,500 1,530,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEW MEXICO - 4.70%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ $4,500 $ 1,721,250
NEW YORK - 8.44%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds:
Series 1995,
6.25%, 4-1-2014 ....................... 1,400 1,410,500
Series 1993,
5.25%, 4-1-2013 ....................... 500 455,625
New York City Industrial Development Agency,
Amended and Restated Industrial Development
Revenue Bonds (1991 Japan Airlines Company,
Ltd. Project),
6.0%, 11-1-2015 ....................... 1,000 1,021,250
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 204,500
Total ................................. 3,091,875
NORTH CAROLINA - 2.97%
North Carolina Eastern Municipal Power
Agency, Power System Revenue Bonds,
Refunding Series 1993 B,
7.0%, 1-1-2008 ........................ 1,000 1,086,250
OHIO - 2.26%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 825,937
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA - 6.29%
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):
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-2012 ....................... 500 505,000
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-2014 ........................ 200 216,750
Holdenville Industrial Authority, Correctional
Facility Revenue Bonds, Series 1995,
6.35%, 7-1-2006 ....................... 500 501,875
Total ................................. 2,304,875
PENNSYLVANIA - 4.56%
Montgomery County Industrial Development
Authority, Retirement Community Revenue Bonds
(Adult Communities Total Services, Inc.
Obligated Group), Series 1996B,
5.625%, 11-15-2012 .................... 1,750 1,669,062
SOUTH CAROLINA - 2.62%
York County, South Carolina, Pollution Control
Facilities Revenue Refunding Bonds (Bowater
Incorporated Project), Series 1991A,
7.4%, 1-1-2010 ........................ 900 960,750
TENNESSEE - 2.84%
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,040,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1997
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TEXAS - 9.27%
Dallas-Fort Worth International Airport,
Facility Improvement Corporation, American
Airlines, Inc. Revenue Bonds, Series 1990,
7.5%, 11-1-2025 ....................... $1,500 $ 1,593,750
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 1,056,250
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 744,000
Total ................................. 3,394,000
WASHINGTON - 6.91%
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 1,488,750
Washington Public Power Supply System,
Nuclear Project No. 1, Refunding
Revenue Bonds, Series 1996A,
6.0%, 7-1-2008 ........................ 1,000 1,040,000
Total ................................. 2,528,750
TOTAL MUNICIPAL BONDS - 95.05% $34,806,575
(Cost: $34,293,635)
TOTAL SHORT-TERM SECURITIES - 4.13% $ 1,513,000
(Cost: $1,513,000)
TOTAL INVESTMENT SECURITIES - 99.18% $36,319,575
(Cost: $35,806,635)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.82% 299,039
NET ASSETS - 100.00% $36,618,614
See Notes to Schedules of Investments on page .
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 1997
Notes to Schedules of Investments
* No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) Principal amounts are denominated in the indicated foreign currency where
applicable ($A - Australian Dollar, DM - Deutsche Mark, SFr _ Swiss Franc).
(C) As of March 31, 1997, the following restricted securities were owned in the
Asset Strategy Fund:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Banco de Inversion y
Comercio Exterior S.A.,
9.375%, 12-27-2000 2/18/97 $300 $312,000 $302,439
Compania de Transporte de
Energia Electrica en Alta
Tension TRANSENER Sociedad
Anonima,
9.625%, 7-15-99 2/13/97 300 311,250 308,250
Ispat Mexicana, S.A. de C.V.,
10.375%, 3-15-2001 3/17/97 300 303,375 301,500
-------- --------
$926,625 $912,189
======== ========
The total market value of restricted securities represents approximately
6.75% of the total net assets at March 31, 1997.
(D) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 Total International
Return Growth Growth
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $319,262,141$196,036,250 $53,845,344
Cash .............. --- 5,283 2,997
Receivables:
Fund shares sold .. 1,449,752 523,175 454,629
Investment securities
sold ............ 103,169 4,416,452 828,619
Dividends and interest 263,782 89,508 101,413
Unamortized organization
expenses (Note 2) . 3,259 3,259 3,259
Prepaid insurance premium 456 462 76
------------------------ -----------
Total assets .... 321,082,559 201,074,389 55,236,337
Liabilities ------------ ----------- -----------
Payable for Fund shares
redeemed .......... 2,188,470 1,401,887 112,453
Payable for investment
securities purchased 684,931 1,120,728 4,372,301
Accrued service fee -
Class B (Note 3)... 183,077 134,337 26,156
Accrued transfer agency and
dividend disbursing (Note 3) 38,049 41,955 8,839
Due to custodian .... 1,503 --- ---
Organization expenses
payable ........... 3,259 3,259 3,259
Accrued distribution
fee - Class B (Note 3) 6,517 4,075 1,031
Dividends payable .. --- --- ---
Accrued accounting
services fee (Note 3) 4,167 4,167 1,666
Accrued management fee
(Note 2) .......... 6,168 4,403 1,115
Other .............. 9,242 7,868 10,170
------------------------ -----------
Total liabilities 3,125,383 2,722,679 4,536,990
------------------------ -----------
Total net assets $317,957,176$198,351,710 $50,699,347
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 174,931$ 109,224 $ 40,886
Additional paid-in
capital ......... 246,814,790 185,400,277 43,052,909
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income --- --- ---
Accumulated undistributed
net realized gain (loss)
on investments .. 2,677,929 10,399,672 2,559,619
Net unrealized appreciation
(depreciation) of investments
at end of period 68,289,526 2,442,537 5,045,933
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $317,957,176$198,351,710 $50,699,347
======================== ===========
Net asset value, redemption and
offering price per share:
Class B Shares ..... $18.18 $18.16 $12.40
Class Y Shares ..... $18.35 $18.32 $12.52
Capital shares outstanding:
Class B Shares 17,465,624 10,908,035 4,070,442
Class Y Shares 27,468 14,408 18,133
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997 Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4) $13,276,675 $17,767,389 $36,319,575
Cash .............. 2,517 320 ---
Receivables:
Fund shares sold .. 71,543 93,315 31,523
Investment securities
sold ............ 129,746 --- ---
Dividends and interest 121,031 295,218 639,510
Unamortized organization
expenses (Note 2) . 481 3,259 3,259
Prepaid insurance premium 74 80 100
------------------------ -----------
Total assets .... 13,602,067 18,159,581 36,993,967
Liabilities ------------------------ -----------
Payable for Fund shares
redeemed .......... 74,590 253,963 317,756
Payable for investment
securities purchased --- --- ---
Accrued service fee -
Class B (Note 3) .. 8,367 11,401 21,699
Accrued transfer agency and
dividend disbursing (Note 3) 2,541 3,331 4,348
Due to custodian .... --- --- 3,933
Organization expenses
payable ........... 481 3,259 3,259
Accrued distribution
fee - Class B (Note 3) 276 366 753
Dividends payable .. --- 9,682 19,262
Accrued accounting
services fee (Note 3) 833 833 1,667
Accrued management fee
(Note 2) .......... 299 275 562
Other .............. 974 1,452 2,114
------------------------ -----------
Total liabilities 88,361 284,542 375,353
------------------------ -----------
Total net assets $13,513,706 $17,875,039 $36,618,614
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 13,892 $ 18,053$ 34,111
Additional paid-in
capital ......... 14,196,290 18,262,177 36,320,553
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income 31,035 --- ---
Accumulated undistributed
net realized gain (loss)
on investments .. (226,008) (88,322) (248,990)
Net unrealized appreciation
(depreciation) of investments
at end of period (501,503) (316,869) 512,940
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $13,513,706 $17,875,039 $36,618,614
======================== ===========
Net asset value, redemption and
offering price per share:
Class B Shares ..... $9.73 $9.90 $10.74
Class Y Shares ..... $9.73 $9.90 $10.74
Capital shares outstanding:
Class B Shares 1,377,255 1,794,717 3,410,974
Class Y Shares 11,935 10,618 97
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1997
Total International
Return Growth Growth
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income (Note 1B):
Interest and amortization$ 1,123,014$ 4,182,041 $ 258,150
Dividends ......... 3,646,222 171,606 348,846
----------- ----------- ----------
Total income .... 4,769,236 4,353,647 606,996
----------- ----------- ----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 1,997,173 1,767,043 233,734
Investment management fee 1,886,789 1,904,258 251,914
Service fee - Class B 645,242 566,457 69,183
Transfer agency and
dividend disbursing -
Class B ......... 441,224 514,901 87,229
Registration fees.. 84,277 80,362 29,268
Accounting services fee 50,000 50,000 17,500
Custodian fees .... 16,077 12,384 55,495
Audit fees ........ 16,300 16,253 8,462
Amortization of organization
expenses ........ 6,518 6,518 6,518
Amortization of prepaid
registration fees --- --- ---
Legal fees ........ 3,608 3,338 1,237
Shareholder servicing fee -
Class Y ......... 223 32 69
Distribution fees - Class Y 380 106 124
Other ............. 61,560 67,978 10,624
------------------------ -----------
Total expenses .. 5,209,371 4,989,630 771,357
------------------------ -----------
Net investment income
(loss) ........ (440,135) (635,983) (164,361)
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities...... 3,484,953 13,839,883 3,179,365
Realized net gain (loss)
from foreign currency
transactions ...... --- --- (3,011)
------------------------ -----------
Realized net gain
(loss) on investments 3,484,953 13,839,883 3,176,354
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ 26,027,620 (39,982,914) 4,245,896
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- (23,809)
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- 70,820
------------------------ -----------
Unrealized appreciation
(depreciation) 26,027,620 (39,982,914) 4,292,907
------------------------ -----------
Net gain (loss)
on investments.. 29,512,573 (26,143,031) 7,469,261
------------------------ -----------
Net increase (decrease)
in net assets
resulting from
operations ..... $29,072,438($26,779,014) $7,304,900
======================== ===========
See notes to financial statements.<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1997
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $627,008 $1,254,083 $2,188,413
Dividends ......... 54,477 --- ---
------------------------ -----------
Total income .... 681,485 1,254,083 2,188,413
------------------------ -----------
Expenses (Notes 2 and 3):
Distribution fees -
Class B ......... 107,986 145,292 269,119
Investment management fee 116,390 108,389 200,636
Service fee - Class B 35,643 47,846 82,819
Transfer agency and
dividend disbursing -
Class B ......... 37,048 43,801 57,118
Registration fees.. 26,577 20,453 25,639
Accounting services fee 10,000 10,000 20,000
Custodian fees .... 4,668 3,506 7,144
Audit fees ........ 7,633 9,243 9,280
Amortization of organization
expenses ........ 152 6,518 6,518
Amortization of prepaid
registration fees 3,483 --- ---
Legal fees ........ 1,145 478 2,621
Shareholder servicing fee -
Class Y ......... 26 22 2
Distribution fees - Class Y 48 41 3
Other ............. 12,379 5,946 8,504
------------------------ -----------
Total expenses .. 363,178 401,535 689,403
------------------------ -----------
Net investment income
(loss) ........ 318,307 852,548 1,499,010
------------------------ -----------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities...... (224,368) (88,346) 308,152
Realized net gain (loss)
from foreign currency
transactions ...... 1,803 --- ---
------------------------ -----------
Realized net gain
(loss) on investments (222,565) (88,346) 308,152
------------------------ -----------
Unrealized appreciation
(depreciation) in value
of securities during
the period ........ (178,352) (110,492) 23,298
Unrealized depreciation from
translation of assets and
liabilities in foreign
currencies......... --- --- ---
Unrealized appreciation on
forward currency
contracts during the
period ............ --- --- ---
------------------------ -----------
Unrealized appreciation
(depreciation) ... (178,352) (110,492) 23,298
------------------------ -----------
Net gain (loss)
on investments . (400,917) (198,838) 331,450
------------------------ -----------
Net increase (decrease)
in net assets
resulting from
operations ..... ($82,610) $653,710 $1,830,460
======================== ===========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1997
Total International
Return Growth Growth
Fund Fund Fund
Increase (Decrease)
in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... ($ 440,135)($ 635,983)($ 164,361)
Realized net gain (loss)
on investments ... 3,484,953 13,839,883 3,176,354
Unrealized
appreciation
(depreciation) .. 26,027,620 (39,982,914) 4,292,907
--------------------------------------
Net increase (decrease)
in net assets
resulting from
operations...... 29,072,438 (26,779,014) 7,304,900
------------------------ -----------
Dividends to shareholders (Note 1E):*
From net investment income
Class B ......... --- --- (27,619)
Class Y ......... --- --- (21)
From realized net gain on
investment transactions
Class B ......... (1,707,064) (6,956,540) ---
Class Y ......... (541) (30) ---
------------------------ -----------
.............. (1,707,605) (6,956,570) (27,640)
------------------------ -----------
Capital share
transactions
(Note 6)........... 82,272,487 29,529,409 22,541,081
------------------------ -----------
Total increase
(decrease) ... 109,637,320 (4,206,175) 29,818,341
Net Assets
Beginning of period 208,319,856 202,557,885 20,881,006
------------------------ -----------
End of period ...... $317,957,176$198,351,710 $50,699,347
======================== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1997
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
Increase (Decrease)
in Net Assets ------------ ----------- -----------
Operations:
Net investment income
(loss) .......... $ 318,307 $ 852,548$ 1,499,010
Realized net gain (loss)
on investments ... (222,565) (88,346) 308,152
Unrealized
appreciation
(depreciation) .. (178,352) (110,492) 23,298
----------- ----------------------
Net increase (decrease)
in net assets
resulting from
operations (82,610) 653,710 1,830,460
----------- ----------------------
Dividends to shareholders (Note 1E):*
From net investment income
Class B ......... (293,198) (851,617)(1,498,961)
Class Y ......... (759) (931) (49)
From realized net gain on
investment transactions
Class B ......... (191,005) (15,809) ---
Class Y ......... (14) (4) ---
----------- ----------------------
.............. (484,976) (868,361)(1,499,010)
----------- ----------------------
Capital share
transactions
(Note 6)........... 858,835 (5,592,840) 2,417,313
----------- ----------------------
Total increase
(decrease) ... 291,249 (5,807,491) 2,748,763
Net Assets
Beginning of period 13,222,457 23,682,530 33,869,851
----------- ----------------------
End of period ...... $13,513,706 $17,875,039$36,618,614
=========== ======================
Undistributed net
investment income $31,035 $--- $---
======= ==== ====
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1996
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 (Note 1E):*
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 - .
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 (Note 1E):*
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 - .
**For the period from April 20, 1995 through March 31, 1996.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------------- March 31,
1997 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)........... (0.02) (0.01) 0.00 (0.01) 0.02
Net realized and
unrealized gain
on investments .. 1.97 3.67 0.74 0.93 1.07
------ ------ ------ ------ ------
Total from investment
operations ....... 1.95 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 ... (0.11) (0.05) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions. (0.11) (0.05) (0.00) (0.00) (0.02)
------ ------ ------ ------ ------
Net asset value,
end of period .... $18.18 $16.34 $12.73 $11.99 $11.07
====== ====== ====== ====== ======
Total return ....... 11.93% 28.75% 6.17% 8.31% 10.91%
Net assets, end of
period (000
omitted) ..........$317,453$208,233$104,691$61,735 $12,460
Ratio of expenses
to average net
assets ........... 1.95% 1.99% 2.05% 2.16% 2.21%
Ratio of net investment
income to average
net assets ....... -0.17% -0.11% -0.04% -0.12% 0.32%
Portfolio turnover
rate ............. 26.23% 16.78% 16.60% 17.31% 23.97%
Average commission
rate paid ......... $0.0578
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
TOTAL RETURN FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $16.38 $15.32
------ ------
Income from investment
operations:
Net investment
income........... .04 0.03
Net realized and
unrealized gain
on investments .. 2.04 1.03
------ ------
Total from investment
operations ....... 2.08 1.06
------ ------
Less distribution from
capital gains .... (0.11) (0.00)
------ ------
Net asset value,
end of period .... $18.35 $16.38
====== ======
Total return ....... 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $504 $87
Ratio of expenses
to average net
assets ........... 1.18% 0.96%**
Ratio of net investment
income to average
net assets ....... 0.65% 1.04%**
Portfolio turnover
rate ............. 26.23% 16.78%**
Average commission
rate paid ......... $0.0578
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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) ... (0.06) (0.02) 0.00 (0.04) (0.02)
Net realized and
unrealized gain (loss)
on investments .. (2.18) 4.49 3.15 2.75 1.79
------ ------ ------ ------ ------
Total from investment
operations ....... (2.24) 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 ... (0.60) (0.37) (0.33) (0.31) (0.08)
------ ------ ------ ------ ------
Total distributions (0.60) (0.37) (0.33) (0.31) (0.09)
------ ------ ------ ------ ------
Net asset value,
end of period .... $18.16 $21.00 $16.90 $14.08 $11.68
====== ====== ====== ====== ======
Total return ....... -10.97% 26.57% 22.61% 23.16% 17.71%
Net assets, end of period
(000 omitted) ...$198,088$202,557$100,683$43,524 $7,976
Ratio of expenses
to average net
assets ........... 2.12% 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 .............. 37.20% 31.84% 56.30% 69.12% 124.44%
Average commission
rate paid ......... $0.0516
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
GROWTH FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $21.04 $20.21
------ ------
Income from investment
operations:
Net investment
income........... 0.01 .04
Net realized and
unrealized gain (loss)
on investments .. (2.13) .79
------ ------
Total from investment
operations ....... (2.12) .83
------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00)
Distributions from
capital gains ... (0.60) (0.00)
------ ------
Total distributions (0.60) (0.00)
------ ------
Net asset value,
end of period .... $18.32 $21.04
====== ======
Total return ....... -10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $264 $1
Ratio of expenses
to average net
assets ........... 1.17% 1.17%**
Ratio of net investment
income to average
net assets ....... 0.31% 0.78%**
Portfolio turnover
rate ............. 37.20% 31.84%**
Average commission
rate paid ......... $0.0516
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
--------------------------- March 31,
1997 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 (loss) ... (0.03) 0.08 0.36 0.34 0.20
Net realized and
unrealized gain (loss)
on investments .. 2.50 0.63 (0.01) (0.31) (0.32)
------ ------ ----- ----- ------
Total from investment
operations ....... 2.47 0.71 0.35 0.03 (0.12)
------ ------ ----- ----- ------
Less distributions:
Dividends declared
from net investment
income .......... (0.01) (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. (0.01) (0.13) (0.36) (0.34) (0.20)
------ ------ ----- ----- ------
Net asset value,
end of period .... $12.40 $9.94 $9.36 $9.37 $ 9.68
====== ====== ===== ===== ======
Total return ....... 24.85% 7.64% 3.84% 0.33% -1.28%
Net assets, end of
period (000
omitted) .........$50,472 $20,874$11,188 $10,282 $7,181
Ratio of expenses
to average net
assets ........... 2.46% 2.50% 2.29% 2.24% 2.06%
Ratio of net investment
income to average
net assets ....... -0.52% 0.63% 3.87% 3.56% 3.88%
Portfolio turnover
rate ............. 94.76% 88.55% 13.33% 34.90% 8.35%
Average commission
rate paid ......... $0.0124
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
**The Corporation's inception date is January 29, 1992; however, since the
Fund did not have any investment activity or incur expenses prior to the
date of initial public offering, the per share information is for a capital
share outstanding for the period from September 21, 1992 (initial public
offering) through March 31, 1993. Ratios and the portfolio turnover rate
have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
INTERNATIONAL GROWTH FUND*
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $9.95 $9.70
------ ------
Income from investment
operations:
Net investment
income (loss) ... 0.02 0.02
Net realized and
unrealized gain
on investments .. 2.56 0.23
------ ------
Total from investment
operations ....... 2.58 0.25
------ ------
Less dividends from net
investment income (0.01) (0.00)
------ ------
Net asset value,
end of period .... $12.52 $9.95
====== ======
Total return ....... 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $227 $7
Ratio of expenses
to average net
assets ........... 1.59% 1.84%**
Ratio of net investment
income to average
net assets ....... 0.05% 1.07%**
Portfolio turnover
rate ............. 94.76% 88.55%**
Average commission
rate paid ......... $0.0124
*Commencement of operations.
**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,
fiscal 1995
year through
ended March
3/31/97 31, 1996*
--------- ---------
Net asset value,
beginning of period $10.15 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... 0.23 0.16
Net realized and
unrealized gain (loss)
on investments... (0.30) 0.14
------ ------
Total from investment
operations ........ (0.07) 0.30
------ ------
Less distributions:
Dividends from
net investment
income ............ (0.21) (0.15)
Distributions from
capital gains ..... (0.14) (0.00)
------ ------
(0.35) (0.15)
------ ------
Net asset value,
end of period ..... $9.73 $10.15
====== ======
Total return ....... -0.86% 3.00%
Net assets, end of
period (000
omitted) .........$13,398 $13,221
Ratio of expenses
to average net
assets ............ 2.52% 2.54%
Ratio of net investment
income to average net
assets ............ 2.21% 2.14%
Portfolio
turnover rate ..... 109.92% 75.02%
Average commission
rate paid ......... $0.0375
*The Fund's inception date is January 31, 1995; however, since the Fund
did not have investment activity or incur expenses prior to the date of
public offering, the per share information is for a capital share
outstanding for the period from April 20, 1995 (initial public offering)
through March 31, 1996. Ratios have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
ASSET STRATEGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $10.16 $10.23
------ ------
Income from investment
operations:
Net investment
income........... 0.27 0.07
Net realized and
unrealized loss
on investments .. (0.26) (0.08)
------ ------
Total from investment
operations ....... 0.01 (0.01)
------ ------
Less distributions:
Dividends from net
investment income (0.30) (0.06)
Distributions from
capital gains .... (0.14) (0.00)
------ ------
(0.44) (0.06)
------ ------
Net asset value,
end of period .... $9.73 $10.16
====== ======
Total return ....... 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $116 $1
Ratio of expenses
to average net
assets ........... 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 2.97% 2.34%**
Portfolio turnover
rate ............. 109.92% 75.02%**
Average commission
rate paid ......... $0.0375
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------------- March 31,
1997 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 .......... 0.44 0.41 0.39 0.35 0.18
Net realized and
unrealized gain
(loss) on
investments ..... (0.09) 0.30 (0.13) (0.20) 0.06
------ ------ ----- ------ ------
Total from investment
operations ....... 0.35 0.71 0.26 0.15 0.24
------ ------ ----- ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.44) (0.41) (0.39) (0.35) (0.18)
Distribution from
capital gains ... (0.01) (0.00) (0.01) (0.02) (0.00)
------ ------ ----- ------ ------
Total distributions (0.45) (0.41) (0.40) (0.37) (0.18)
------ ------ ----- ------ ------
Net asset value,
end of period .... $9.90 $10.00 $9.70 $ 9.84 $10.06
====== ====== ===== ====== ======
Total return ....... 3.52% 7.41% 2.73% 1.41% 2.40%
Net assets, end of
period (000
omitted) .........$17,770 $23,682$12,419 $11,671 $6,259
Ratio of expenses
to average net
assets ........... 2.07% 2.10% 2.17% 2.14% 2.15%
Ratio of net investment
income to average
net assets ........ 4.40% 4.14% 4.05% 3.41% 3.48%
Portfolio turnover
rate ............. 23.05% 22.08% 29.20% 25.90% 39.64%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
LIMITED-TERM BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $10.00 $10.16
------ ------
Income from investment
operations:
Net investment
income........... 0.52 0.11
Net realized and
unrealized loss
on investments .. (0.09) (0.16)
------ ------
Total from investment
operations ....... 0.43 (0.05)
------ ------
Less distributions:
Dividends from net
investment income (0.52) (0.11)
Distribution from
capital gains .... (0.01) (0.00)
------ ------
(0.53) (0.11)
------ ------
Net asset value,
end of period .... $9.90 $10.00
====== ======
Total return ....... 4.33% -0.49%
Net assets, end of
period (000
omitted) .......... $105 $1
Ratio of expenses
to average net
assets ........... 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 5.62% 4.70%**
Portfolio turnover
rate ............. 23.05% 22.08%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
For the fiscal period
year ended March 31, ended
---------------------------- March 31,
1997 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 .......... 0.45 0.43 0.44 0.39 0.21
Net realized and
unrealized gain
(loss) on
investments ..... 0.11 0.33 0.18 (0.28) 0.53
------ ------ ------ ------ ------
Total from investment
operations ....... 0.56 0.76 0.62 0.11 0.74
------ ------ ------ ------ ------
Less distributions:
Dividends declared
from net investment
income .......... (0.45) (0.43) (0.44) (0.39) (0.21)
Distribution from
capital gains ... (0.00) (0.00) (0.00) (0.13) (0.00)
------ ------ ------ ------ ------
Total distributions (0.45) (0.43) (0.44) (0.52) (0.21)
------ ------ ------ ------ ------
Net asset value,
end of period .... $10.74 $10.63 $10.30 $10.12 $10.53
====== ====== ====== ====== ======
Total return ....... 5.32% 7.48% 6.37% 0.76% 7.37%
Net assets, end of
period (000
omitted) .........$36,618 $33,869$27,434 $24,960 $8,557
Ratio of expenses
to average net
assets ........... 1.92% 1.93% 1.94% 1.98% 1.94%
Ratio of net investment
income to average
net assets ....... 4.18% 4.05% 4.41% 3.62% 3.99%
Portfolio turnover
rate ............. 34.72% 42.02% 56.92% 18.93% 140.02%
*The Corporation's inception date is January 29, 1992; however, since the Fund
did not have any investment activity or incur expenses prior to the date of
initial public offering, the per share information is for a capital share
outstanding for the period from September 21, 1992 (initial public offering)
through March 31, 1993. Ratios and the portfolio turnover rate have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the
fiscal For the
year period from
ended December 29, 1995*
3/31/97 to March 31, 1996
-------- --------------------
Net asset value,
beginning of
period ........... $10.63 $10.94
------ ------
Income from investment
operations:
Net investment
income........... 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ..... 0.11 (0.31)
------ ------
Total from investment
operations ....... 0.63 (0.19)
------ ------
Less dividends from net
investment income (0.52) (0.12)
------ ------
Net asset value,
end of period .... $10.74 $10.63
====== ======
Total return ....... 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $1 $1
Ratio of expenses
to average net
assets ........... 1.28% 1.18%**
Ratio of net investment
income to average
net assets ....... 4.83% 4.33%**
Portfolio turnover
rate ............. 34.72% 42.02%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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 and post-1984 market discount on the purchase of
bonds 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 Subchapter M of 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
dividends and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items
such as deferral of wash sales and post-October losses, foreign currency
transactions, net operating losses and expiring capital loss carryforwards.
The following items identified in the period ended March 31, 1997 have been
reclassified between accumulated undistributed net investment income and
accumulated undistributed net realized gain on investment transactions or
to additional paid-in capital:
Increase Decrease Decrease
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
Total Return
Fund $440,135 $(440,135)
Growth Fund 635,983 $(635,983)
International
Growth Fund 228,669 (228,669)
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.
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
March 31, 1997, the Distributor received $5,967,537 in 12b-1 payments. During
this same period W&R paid sales commissions of $3,902,661.
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 March 31, 1997, the Distributor received $751 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 March 31, 1997, the Distributor received $902,776 in deferred sales
charges.
The Corporation paid Directors' fees of $21,878, which are included in
other expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 1997 are
summarized as follows:
Total International
Return Growth Growth
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $130,985,182$106,569,609$54,231,968
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 245,610,692866,162,18240,335,190
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 64,167,41258,921,57725,784,978
Proceeds from maturities
and sales of U.S.
Government securities --- --- 1,000,000
Proceeds from maturities
and sales of short-term
securities 229,985,477897,536,02641,848,075
Asset Limited- Municipal
Strategy Term Bond
Fund Fund Fund
--------------------------------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $14,413,220$ 1,780,514$16,291,824
Purchases of U.S. Government
securities 3,040,785 2,528,559 ---
Purchases of short-term
securities 34,621,037 9,641,00013,382,501
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 7,307,672 5,702,35612,044,583
Proceeds from maturities
and sales of U.S.
Government securities 4,313,574 3,339,282 ---
Proceeds from maturities
and sales of short-term
securities 39,820,01410,143,06514,216,050
For Federal income tax purposes, cost of investments owned at March 31,
1997 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $250,977,093 $70,238,657 $1,953,609 $68,285,048
Growth Fund 193,593,713 29,636,437 27,193,900 2,442,537
International Growth
Fund 48,775,835 6,470,734 1,475,013 4,995,721
Asset Strategy Fund 13,778,178 213,972 715,475 (501,503)
Limited-Term Bond Fund18,084,258 33,572 350,441 (316,869)
Municipal Bond Fund 35,896,819 679,117 256,361 422,756
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Total Return Fund and Growth Fund realized
capital gain net income of $3,484,953 and $13,839,882 respectively, during the
year ended March 31, 1997. For Federal income tax purposes, International
Growth Fund realized capital gain net income of $2,863,917 during the year ended
March 31, 1997, which includes utilization of capital loss carryforwards of
$389,830. For Federal income tax purposes, Municipal Bond Fund realized capital
gains of $302,510 during the year ended March 31, 1997, which were entirely
offset by utilization of capital loss carryforwards. Remaining prior year
capital loss carryforwards of Municipal Bond Fund totaled $160,264 at March 31,
1997. Of this amount, $31,213 is available to offset future realized capital
gain net income through March 31, 2003, and the remaining $129,051 is available
to offset future realized capital gain net income through March 31, 2004. For
Federal income tax purposes, Asset Strategy Fund and Limited-Term Bond Fund
realized capital losses of $224,368 and 88,346, respectively, during the year
ended March 31, 1997, and these losses are available to offset future realized
capital gain net income of each fund through March 31, 2005. 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, 1997. Remaining capital gains of
these Funds, as well as the capital gain net income of International Growth
Fund, will be distributed to shareholders.
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 March 31, 1997 are
summarized below.
Total International
Return Growth Growth
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 6,808,591 3,632,678 2,238,293
Class Y ............ 24,004 14,358 17,526
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 95,480 341,944 2,464
Class Y ............ 30 1 2
Shares redeemed:
Class B ............ (2,181,104) (2,712,593) (270,903)
Class Y ............ (1,854) --- (118)
--------- --------- ---------
Increase in outstanding
capital shares:
Class B ............ 4,722,967 1,262,029 1,969,854
Class Y ............ 22,180 14,359 17,410
--------- --------- ---------
Total for Fund .... 4,745,147 1,276,388 1,987,264
========= ========= =========
Value issued from sale
of shares:
Class B ............ $119,248,838 $77,383,014 $25,345,167
Class Y ............ 448,206 293,327 208,529
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,705,291 6,948,199 27,578
Class Y ............ 541 30 21
Value redeemed:
Class B ............ (39,096,763) (55,095,161) (3,038,791)
Class Y ............ (33,626) --- (1,423)
----------- ----------- -----------
Increase in outstanding
capital:
Class B ............ 81,857,366 29,236,052 22,333,954
Class Y ............ 415,121 293,357 207,127
----------- ----------- -----------
Total for Fund .. $82,272,487 $29,529,409 $22,541,081
=========== =========== ===========
Asset Limited- Municipal
Strategy Term Bond Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 648,628 532,545 690,053
Class Y ............ 11,760 10,427 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 47,461 84,279 123,331
Class Y ............ 77 91 5
Shares redeemed:
Class B ............ (621,105) (1,190,546) (587,793)
Class Y ............ --- --- ---
--------- --------- -------
Increase (decrease) in
outstanding capital shares:
Class B ............ 74,984 (573,722) 225,591
Class Y ............ 11,837 10,518 5
--------- --------- -------
Total for Fund .... 86,821 (563,204) 225,596
========= ========= =======
Value issued from sale
of shares:
Class B ............ $6,618,305 $5,314,824 $7,405,072
Class Y ............ 120,365 104,186 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 483,186 840,800 1,327,022
Class Y ............ 773 956 48
Value redeemed:
Class B ............ (6,363,794) (11,853,606) (6,314,829)
Class Y ............ --- --- ---
----------- ----------- ----------
Increase (decrease) in
outstanding capital:
Class B ............ 737,697 (5,697,982) 2,417,265
Class Y ............ 121,138 105,142 48
----------- ----------- ----------
Total for Fund .. $ 858,835 ($5,592,840) $2,417,313
=========== =========== ==========
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.
NOTE 8 -- Commitments
At March 31, 1997, International Growth Fund had entered into foreign
exchange contracts in addition to the contracts listed in the Schedule of
Investments, under which it had agreed to purchase and sell foreign currency
with an approximate market value of $4,382,925 and $842,898, respectively.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Funds, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Total Return Fund, Growth Fund,
International Growth Fund, Asset Strategy Fund, Limited-Term Bond Fund
and Municipal Bond Fund (collectively the _Funds_ ) comprising Waddell &
Reed Funds, Inc., as of March 31, 1997, the related statements of
operations and changes in net assets for the year then ended, and the
financial highlights for the year then ended. These financial statements
and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
The financial statements and the financial highlights of the Funds for
each of the periods presented in the four-year period ended March 31,
1996 were audited by other auditors whose report, dated May 10, 1996,
expressed an unqualified opinion on those statements and financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
the financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at March 31, 1997 by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of each
of the respective funds comprising Waddell & Reed Funds, Inc. as of March
31, 1997, the results of their operations, the changes in their net
assets, and their financial highlights for the year then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1997
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- Waddell & Reed Funds, Inc.
Included in Part B:
-------------------
As of March 31, 1997
Statements of Assets and Liabilities
For the year ended March 31, 1997
Statements of Operations
For each of the two years in the period ended March 31, 1997
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of March 31, 1997
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedules
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, attached hereto as EX-99.B1-
charter
Articles Supplementary, attached hereto as EX-99.B1-wrartsup
(2) Bylaws, as amended, filed June 27, 1996 as EX-99.B2-wrbylaw to Post-
Effective Amendment No. 7 to the Registration Statement on Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of Incorporation of
the Registrant, filed February 3, 1995 as EX-99.B1-wrartres to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-1A*;
Article II, Article VII, Article VIII and Article XI of the Bylaws of
the Registrant, attached hereto as EX-99.B2-wrbylaw
(5) Investment Management Agreement with amended fee schedule to reflect
the addition of Science and Technology Fund and High Income Fund,
attached hereto as EX-99.B5-wrima
(6) Underwriting Agreement filed June 27, 1995 as EX-99.B6-wrua to Post-
Effective Amendment No. 5 to the Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, attached hereto as EX-99.B8-wrca
The Custodian Agreement for Waddell & Reed Funds, Inc. Science and
Technology Fund is attached and being filed as a representative copy.
The Custodian Agreements for all eight series of Waddell & Reed Funds,
Inc. are identical with the exception of their respective effective
dates.
(9) Shareholder Servicing Agreement, as amended, filed June 27, 1996 as
EX-99.B9-wrssa to Post-Effective Amendment No. 7 to the Registration
Statement on Form N-1A*
Accounting Services Agreement filed October 3, 1995, as EX-99.B9-wrasa
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A*
Fund NAV Application filed February 3, 1995 as EX-99.B9-wrnavapp to
Post-Effective Amendment No. 4 to the Registration Statement on Form
N-1A*
Fund Class B Application, as amended, attached hereto as EX-99.B9-
wrappcb
Fund Class Y Application, filed October 3, 1995, as EX-99.B9-wrappcy
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A*
Class Y Letter of Understanding, filed June 27, 1996 as EX-99.B9-wrlou
to Post-Effective Amendment No. 7 to the Registration Statement on
Form N-1A*
(10) Not Applicable
(11) Consent of Deloitte & Touche LLP, Independent Accountants, attached
hereto as EX-99.B11-wrconsnt
Consent of Price Waterhouse LLP, Independent Accountants, attached
hereto as EX-99.B11-wrpwcon
Opinion of Price Waterhouse LLP, Independent Accountants, attached
hereto as EX-99.B11-wrpwopin
(12) Not applicable
(13) Agreement with initial shareholder, Waddell & Reed, Inc. filed June 2,
1992 as Exhibit (b)(13) to Pre-Effective Amendment No. 1 to the
initial Registration Statement on Form N-1A*. Agreement with Initial
Shareholder of Waddell & Reed Funds, Inc. Asset Strategy Fund, filed
on June 27, 1995 as EX-99.B13-wragree to Post-Effective Amendment No.
5 to the Registration Statement on Form N-1A*
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution Basic
Plan Document filed December 16, 1994 as EX-99.B14-1-03bpd to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed December
16, 1994 as EX-99.B14-2-03spd to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed December
16, 1994 as EX-99.B14-3-403baa to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-4-457aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-8-nsmppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-9-nspspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-10-s401aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-11-s401gis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-12-sepaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan Document
filed December 16, 1994 as EX-99.B14-13-sepbpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-15-smppgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description field
December 16, 1994 as EX-99.B14-17-spspgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
20. Simple IRA Plan Document filed March 26, 1997 as EX-99.B14-20-
simple to Post-Effective Amendment No. 119 to the Registration
Statement on Form N-1A of United Funds, Inc.*
21. Individual Retirement Plan filed March 26, 1997 as EX-99.B14-21-
crp00005 to Post-Effective Amendment No. 119 to the Registration
Statement on Form N-1A of United Funds, Inc.*
22. Retirement Plan Distribution/Withdrawal Document attached hereto
as EX-99.B14-22-crp1665
23. Special Tax Notice Regarding Plan Payments attached hereto as EX-
99.B14-23-crp1666
24. Waiver of Joint and Survivor Annuity attached hereto as EX-
99.B14-24-crp1667
25. Spousal Consent on Early Distribution attached hereto as EX-
99.B14-25-crp1668
26. Consent to Lump Sum Distribution attached hereto as EX-99.B14-26-
crp1669
(15) Distribution and Service Plan Class B shares, filed October 3, 1995 as
EX-99.B15-wrdspcb to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A
Distribution and Service Plan Class Y shares, filed October 3, 1995 as
EX-99.B15-wrdspcy to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A
(16) Schedule for computation of average annual total return performance
quotations filed February 12, 1993 as Exhibit (b)(16) to Post-
Effective Amendment No. 1 to the Registration Statement on Form N-1A
Computation of average annual total return performance quotations for
Class Y shares attached hereto as EX-99.B16-wrtrcly
Computation of yield performance quotations for Class B and Class Y
shares, filed June 27, 1996 as EX-99.B16-wryield to Post-Effective
Amendment No. 7 to the Registration Statement on Form N-1A*
(17) Financial Data Schedules, attached hereto as EX-27.B17-wrfds1, EX-
27.B17-wrfds2, EX-27.B17-wrfds3, EX-27.B17-wrfds4, EX-27.B17-wrfds5
and EX-27.B17-wrfds6
(18) Multiple Class Plan, filed June 27, 1996 as EX-99.B18-wrmcp to Post-
Effective Amendement No. 7 to the Registration Statement on Form N-1A*
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class April 30, 1997
-------------- ------------------------------
Class B Common 45,341
Class Y Common 4
27. Indemnification
---------------
Reference is made to Article 10.2 of the Registrant's Articles of
Incorporation, filed February 3, 1995 as EX-99.B1-wrartres to Post-
Effective Amendment No. 4 to the Registration Statement on Form N-1A*;
Article IX of the Bylaws, filed June 27, 1996 as EX-99.B2-wrbylaw to Post-
Effective Amendement No. 7 to the Registration Statement on Form N-1A*; and
Article V of the Underwriting Agreement filed June 27, 1995 as EX-99.B6-
wrua to the Post-Effective Amendment No. 5 to the Registration Statement on
Form N-1A*, each of which provides indemnification. Also refer to Section
2-418 of the Maryland General Corporation Law regarding indemnification of
directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the Investment Manager of
the Registrant under the terms of an Investment Management Agreement
whereby it provides investment management services to the Registrant.
Waddell & Reed Investment Management Company is not engaged in any business
other than the provision of investment management services to those
registered investment companies as described in Part A and Part B of this
Post-Effective Amendment.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to Part A and Part B of this Post-Effective
Amendment.
29. Principal Underwriter and Distributor
-------------------------------------
(a) Waddell & Reed, Inc. is the principal underwriter and distributor of
the Registrant's shares. It is also the principal underwriter to the
following investment companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
TMK/United Funds, Inc.
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or an
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to Items (b)(9) and
(b)(15) hereof.
32. Undertakings
--------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(a) of the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Overland Park, and State of Kansas, on the 16th day
of May, 1997.
WADDELL & REED FUNDS, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
Signatures Title
/s/Ronald K. Richey* Chairman of the Board May 16, 1997
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director May 16, 1997
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer May 16, 1997
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and May 16, 1997
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director May 16, 1997
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director May 16, 1997
- --------------------- ----------------
Dodds I. Buchanan
/s/Linda Graves* Director May 16, 1997
- ------------------- ----------------
Linda Graves
/s/John F. Hayes* Director May 16, 1997
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director May 16, 1997
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director May 16, 1997
- ------------------- ----------------
William T. Morgan
/s/William L. Rogers* Director May 16, 1997
- ------------------- ----------------
William L. Rogers
/s/Frank J. Ross, Jr.* Director May 16, 1997
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz* Director May 16, 1997
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director May 16, 1997
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director May 16, 1997
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: February 5, 1997 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board February 5, 1997
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director February 5, 1997
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer February 5, 1997
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and February 5, 1997
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director February 5, 1997
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director February 5, 1997
- -------------------- ----------------
Dodds I. Buchanan
/s/Linda Graves Director February 5, 1997
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director February 5, 1997
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director February 5, 1997
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director February 5, 1997
- -------------------- ----------------
William T. Morgan
/s/William L. Rogers Director February 5, 1997
- -------------------- ----------------
William L. Rogers
/s/Frank J. Ross, Jr. Director February 5, 1997
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor Schwartz Director February 5, 1997
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director February 5, 1997
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director February 5, 1997
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-charter
ARTICLES OF INCORPORATION
OF
WADDELL & REED FUNDS, INC.
(as restated and amended)
FIRST: The undersigned, SHARON K. PAPPAS, whose post office address is
6300 Lamar Avenue, Overland Park, Kansas 66202-4200, being at least eighteen
years of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is WADDELL & REED FUNDS, INC. (the
"Corporation").
THIRD: The purposes for which the Corporation is formed are to act as an
open-end investment management company under the Investment Company Act of 1940,
as amended ("1940 Act"), and to exercise and enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations of a similar character by
the General Laws of the State of Maryland now or hereafter in force, including,
but not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection therewith to hold
part or all of its funds in cash, and to purchase, subscribe for or
otherwise acquire, hold for investment or otherwise, to trade and deal in,
write, sell, assign, negotiate, transfer, exchange, lend, pledge or
otherwise dispose of or turn to account or realize upon, securities (which
term "securities" shall, for the purposes of these Articles of
Incorporation, without limiting the generality thereof, be deemed to
include any stocks, shares, bonds, debentures, bills, notes, mortgages or
other obligations or evidences of indebtedness, and any options,
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets; and any negotiable or non-negotiable instruments and money market
instruments, including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all kinds of repurchase or
reverse repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall, for the purpose of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any persons, firms, associations, partnerships,
corporations, syndicates, combinations, organizations, governments or
subdivisions, agencies or instrumentalities of any government); and to
exercise, as owner or holder of any securities, all rights, powers and
privileges in respect thereof including the right to vote thereon; to aid
by further investment any issuer, any obligation of or interest in which is
held by the Corporation or in the affairs of which the Corporation has any
direct or indirect interest; to guarantee or become surety on any or all of
the contracts, stocks, bonds, notes, debentures and other obligations of
any corporation, company, trust, association or firm; and to do any and all
acts and things for the preservation, protection, improvement and
enhancement in value of any and all such securities.
(b) To acquire all or any part of the goodwill, rights, property and business
of any person, firm, association or corporation heretofore or hereafter
engaged in any business similar to any business which the Corporation has
the power to conduct, and to hold, utilize, enjoy and in any manner dispose
of the whole or any part of the rights, property and business so acquired,
and to assume in connection therewith any liabilities of any such person,
firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may be
capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the 1940 Act and by
these Articles of Incorporation, as its Board of Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell, transfer,
reissue or cancel (all without the vote or consent of the stockholders of
the Corporation) shares of its capital stock in any manner and to the
extent now or hereafter permitted by the laws of the State of Maryland, by
the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more offices in
Maryland and elsewhere in any part of the world, without restriction or
limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states, territories,
districts and United States dependencies and in foreign countries, all of
the powers, rights and privileges granted to, or conferred upon,
corporations by the General Laws of the State of Maryland now or hereafter
in force.
(h) In general to carry on any other business in connection with or incidental
to its corporate purposes, to do everything necessary, suitable or proper
for the accomplishment of such purposes or for the attainment of any object
or the furtherance of any power herein before set forth, either alone or in
association with others, to do every other act or thing incidental or
appurtenant to or growing out of or connected with its business or
purposes, objects or powers, and, subject to the foregoing, to have and
exercise all the powers, rights and privileges conferred upon corporations
by the laws of the State of Maryland as in force from time to time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another though it be of like nature, not expressed;
provided however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use, maintain,
develop and dispose of (by sale or otherwise) any property, real or
personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other evidence of
indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities, indices of
commodities or securities, and foreign exchange, including the purchase and
sale of futures contracts and options on futures contracts related thereto,
subject to any applicable provisions of law.
FOURTH: The address of the principal office of the Corporation in the
state of Maryland is 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, whose post office address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is incorporated in the State of
Maryland.
FIFTH: Section 5.1. Capital Stock. The total number of shares of capital
stock of all classes which the Corporation shall have authority to issue is six
billion (6,000,000,000) shares, of the par value of one cent ($.01) ("Shares"),
and of the aggregate par value of sixty million dollars ($60,000,000). The
Shares may be issued by the Board of Directors in such separate and distinct
series ("Series") and classes of Series ("Classes") as the Board of Directors
shall from time to time create and establish. The initial Series are as
established below and the authority granted in this Article FIFTH relates to
such Series and to any additional Series hereafter established from time to
time. The Board of Directors shall have full power and authority, in its sole
discretion, to create and establish Series and Classes having such preferences,
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such Shares adopted by the Board of Directors and to redesignate the
classes or series established. In addition, the Board of Directors is hereby
expressly granted authority to increase or decrease the number of Shares of any
Series or Class, but the number of Shares of any Series or Class shall not be
decreased by the Board of Directors below the number of Shares thereof then
outstanding. The Board of Directors is also hereby expressly granted authority
to change the name(s) of any Class(es) or Serie(s) by resolution or resolutions
of the Board of Directors without any action on the part of the Stockholders.
The number of Shares of each initial Series is such number, not exceeding
the total number of authorized Shares of all initial Series of Shares as are
classified below into the Shares of each such Series plus such Shares as may
further be classified into such Series or less such unissued Shares as may be
classified into another Series by the Board of Directors as provided in this
Article FIFTH and pursuant to the Maryland General Corporation Law.
The initial Series of Shares of the Corporation and the number of Shares
set forth for each such Series shall be designated as follows:
Class Shares
Total Return Fund, Class B 250,000,000
Total Return Fund, Class Y 250,000,000
Growth Fund, Class B 250,000,000
Growth Fund, Class y 250,000,000
Limited-Term Bond Fund, Class B 250,000,000
Limited-Term Bond Fund, Class Y 250,000,000
Municipal Bond Fund, Class B 250,000,000
Municipal Bond Fund, Class Y 250,000,000
International Growth Fund, Class B 250,000,000
International Growth Fund, Class Y 250,000,000
Asset Strategy Fund, Class B 250,000,000
Asset Strategy Fund, Class Y 250,000,000
High Income Fund, Class B 250,000,000
High Income Fund, Class Y 250,000,000
Science and Technology Fund, Class B 250,000,000
Science and Technology Fund, Class Y 250,000,000
No articles supplementary to these Articles of Incorporation need be filed
pursuant to Maryland General Corporation Law unless and until the unissued
Shares of any Series or any unclassified Shares are classified or reclassified
into any of the designated Series or into any additional Series so as to change
the classifications set forth above.
The Board of Directors of the Corporation is authorized, from time to time,
to classify or to reclassify, as the case may be, any unissued Shares of the
Corporation in separate Series or Classes. The Shares of said Series or Class
of stock shall have such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by the Board of
Directors. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
Section 5.2. Establishment of Series or Class. The establishment of any
Series or Class shall be effective upon the adoption of a resolution by a
majority of the then Directors setting forth such establishment and designation
and the relative rights and preferences of the Shares of such Series or Class.
At any time that there are no Shares outstanding of any particular Series or
Class previously established and designated, the Directors may by a majority
vote abolish that Series or Class and the establishment and designation thereof.
Section 5.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency, in
such form and in such amount as the Board of Directors may from time to time
determine. Dividends or distributions on Shares of any Class or Series, whether
payable in cash or stock, shall be paid out of earnings, surplus or other assets
belonging to such Class or Series. Dividends may be declared daily or otherwise
pursuant to a standing resolution or resolutions adopted only once or with such
frequency as the Board of Directors may determine.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation, or each Series of the Corporation, for Federal
income tax in respect of that year. However, nothing in the foregoing shall
limit the authority of the Board of Directors to make distributions greater than
or less than the amount necessary to qualify as a regulated investment company
and to avoid liability of the Corporation, or any Series of the Corporation, for
such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 5.7.
Section 5.4. Assets and Liabilities of Series. All consideration received
by the Corporation for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any
proceedsderived from the sale, exchange or liquidation of such assets, and any
funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be referred to as "assets belonging to" that Series. In
addition, any assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Board of Directors between and among one or
more of the Series in such manner as the Board of Directors, in its sole
discretion, deems fair and equitable. Each such allocation shall be conclusive
and binding upon the Stockholders of all Series for all purposes, and shall be
referred to as assets belonging to that Series. The assets belonging to a
particular Series shall be so recorded upon the books of the Corporation. The
assets belonging to each particular Series shall be charged with the liabilities
of that Series and all expenses, costs, charges and reserves attributable to
that Series. Any general liabilities, expenses, costs, charges or reserves of
the Corporation which are not readily identifiable as belonging to any
particular Series shall be allocated and charged by the Board of Directors
between or among any one or more of the Series in such a manner as the Board of
Directors in its sole discretion deems fair and equitable. Each such allocation
shall be conclusive and binding upon the Stockholders of all Series for all
purposes.
Section 5.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his or her name on
the books of the Corporation; provided, however, that when required by the 1940
Act or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business at a Stockholders' meeting,
except that where any provision of law or of these Articles of Incorporation
permit or require that holders of any Series or Class shall vote as a Series or
Class, then one-third of the aggregate number of Shares of that Series or Class
outstanding and entitled to vote thereat, in person or by proxy, shall
constitute a quorum for the transaction of business by that Series or Class.
Section 5.6. Redemption by Stockholders. Each holder of Shares shall have
the right at such times as may be permitted by the Corporation to require the
Corporation to redeem all or any part of his or her Shares at a redemption price
per Share equal to the net asset value per Share as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price per Share shall be the net asset value next
determined (in accordance with Section 5.7) after receipt by the Corporation of
a request for redemption in proper form less such charges as are determined by
the Board of Directors and described in the Corporation's registration statement
under the Securities Act of 1933. The Board of Directors may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of net asset
value, or may be in cash. Notwithstanding the foregoing, the Board of Directors
may postpone payment of the redemption price and may suspend the right of the
holders of Shares to require the Corporation to redeem Shares during any period
or at any time when and to the extent permissible under the 1940 Act.
Section 5.7. Net Asset Value per Share. The net asset value of each Share
of the Corporation, or each Series or Class, shall be the quotient obtained by
dividing the value of the net assets of the Corporation, or if applicable of the
Series or Class (being the value of the assets of the Corporation or of the
particular Series or Class less its actual and accrued liabilities exclusive of
Capital Stock and Surplus) by the total number of outstanding Shares of the
Corporation, or of the Series or Class. The Board of Directors shall have
thepower and duty to determine from time to time the net asset value per Share
at
such times and by such methods as it shall determine subject to any restrictions
or requirements under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the Securities and Exchange
Commission or insofar as permitted by any order of the Securities and Exchange
Commission applicable to the Corporation. The Board of Directors may delegate
such power and duty to any one or more of the directors and officers of the
Corporation, to the Corporation's manager or investment adviser, to the
custodian or depository of the Corporation's assets, or to another agent of the
Corporation.
Section 5.8. Redemption by the Corporation. The Board of Directors may
cause the Corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than five hundred dollars ($500). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his or her Shares to five hundred dollars ($500). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of Shares so redeemed.
SIXTH: Section 6.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 6.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
SEVENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation or of
all Series or Classes (or of any Series or Class entitled to vote thereon as a
separate Series or Class) to take or authorize any action, in accordance with
the authority granted by Section 2-lO4(b)(5) of the Maryland General Corporation
Law, the Corporation is hereby authorized to take such action upon the
concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a majority of the aggregate number of Shares of a Series or Class
entitled to vote thereon as a separate Series or Class). The right to cumulate
votes in the election of directors is expressly prohibited.
EIGHTH: Section 8.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by
theseArticles of Incorporation, or by the By-Laws of the Corporation) shall be
vested
in and exercised by the Board of Directors. The number of directors
constituting the Board of Directors shall be such number as may from time to
time be fixed in or in accordance with the By-Laws of the Corporation, provided
that after stock is issued to more than one stockholder, such number shall not
be less than three. Except as provided in the By-Laws, the election of
directors may be conducted in any way approved at the meeting (whether of
stockholders or directors) at which the election is held, provided that such
election shall be by ballot whenever requested by any person entitled to vote.
The names of the persons who shall act as directors until the first meeting or
stockholders, and until their successor(s) have been duly chosen and qualified
are:
William T. Morgan
Waddell & Reed, Inc.
6300 Lamar Ave.
Overland Park, Kansas 66202
Henry L. Bellmon
Route 1
P.O. Box 26
Red Rock, Oklahoma 74651
Dodds I. Buchanan
903 13th Street
Boulder, Colorado 80302
Jay B. Dillingham
926 Livestock Exchange
Kansas City, Missouri 64102
John F. Hayes
Gilliland & Hayes, P.A.
335 North Washington
Suite 260
Hutchinson, Kansas 67504-2977
Glendon E. Johnson
John Alden Life Insurance Co.
P.O. Box 020270
7300 Corporate Center Drive
Miami, Florida 33126-1208
Doyle Patterson
1030 W. 56th Street
Kansas City, Missouri 64113
Keith A. Tucker
2001 Third Avenue
Birmingham, Alabama 35233
Frederick Vogel, III
1805 W. Bradley Road
Milwaukee, Wisconsin 53217
Paul S. Wise
8648 Silver Saddle Drive
Carefree, Arizona 85377
Leslie S. Wright
2302 Brookshire Place
Birmingham, Alabama 35213
Section 8.2. By-Laws. Except as may otherwise be provided in the By-Laws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal By-Laws or to adopt new By-Laws of the Corporation,
without any action on the part of the Stockholders; but the By-Laws made by the
Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
NINTH: Section 9.1. Contracts. The Board of Directors may in its
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares of
the Corporation by such other party or parties as agent of the Corporation. The
Board of Directors may also in its discretion from time to time enter into an
investment advisory or management contract or contracts, and any such other
contracts, whereby the other party(ies) to such contract(s) shall undertake to
furnish to the Board of Directors such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Board of
Directors may in its discretion determine.
Section 9.2. Parties to Contracts. Any contract of the character
described in Section 9.1 and/or for services as administrator, custodian,
transfer agent or disbursing agent or related services may be entered into with
any corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation under or
by reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article
NINTH. The same person (including a firm, corporation, trust, or association)
may be the other party to contracts entered into pursuant to Section 9.1 above,
and any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
9.2.
TENTH: Section 10.1. Liability. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) as currently in effect
or as may hereafter be amended, no director or officer of the Corporation shall
be liable to the Corporation or its Stockholders for money damages.
Section 10.2. Indemnification. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) currently in effect or
as may hereafter be amended, the Corporation shall indemnify and advance
expenses as provided in the By-Laws to its present and past directors, officers,
employees and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent in similar
capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this Article
TENTH by the Stockholders of the Corporation, or adoption or modification of any
other provision of the Articles of Incorporation or By-Laws inconsistent with
this Article TENTH, shall be prospective only, to the extent that such repeal or
modification would, if applied retrospectively, adversely affect any limitation
on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
ELEVENTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at a meeting of the
Stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon.
IN WITNESS WHEREOF, the undersigned incorporator of WADDELL & REED FUNDS,
INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be her act and further acknowledges that, to the best
of her knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 28th day of January, 1992.
/s/Sharon K. Pappas
-------------------------
Sharon K. Pappas
EX-99.B1-wrartsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
WADDELL & REED FUNDS, INC.
Waddell & Reed Funds, Inc. (the "Corporation"), a Maryland corporation,
having its principal office in Baltimore City, Maryland, hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of
shares of capital stock which the Corporation is authorized to issue at Six
Billion (6,000,000,000) shares of capital stock (par value $0.01 per share),
amounting in the aggregate to a par value of Sixty Million Dollars
($60,000,000.00). Such shares have heretofore been classified by the Board of
Directors among the series of the Corporation, and classes thereof, as follows:
Total Return Fund, Class B 250,000,000 shares
Total Return Fund, Class Y 250,000,000 shares
Growth Fund, Class B 250,000,000 shares
Growth Fund, Class Y 250,000,000 shares
Limited-Term Bond Fund, Class B 250,000,000 shares
Limited-Term Bond Fund, Class Y 250,000,000 shares
Municipal Bond Fund, Class B 250,000,000 shares
Municipal Bond Fund, Class Y 250,000,000 shares
International Growth Fund, Class B 250,000,000 shares
International Growth Fund, Class Y 250,000,000 shares
Asset Strategy Fund, Class B 250,000,000 shares
Asset Strategy Fund, Class Y 250,000,000 shares
All authorized shares that have not been designated or classified remain
available for future designation or classification.
SECOND: Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly redesignates and reclassifies the capital stock of the
Corporation among the series of the Corporation, and classes thereof, as
follows:
Total Return Fund, Class B 250,000,000 shares
Total Return Fund, Class Y 250,000,000 shares
Growth Fund, Class B 250,000,000 shares
Growth Fund, Class Y 250,000,000 shares
Limited-Term Bond Fund, Class B 250,000,000 shares
Limited-Term Bond Fund, Class Y 250,000,000 shares
Municipal Bond Fund, Class B 250,000,000 shares
Municipal Bond Fund, Class Y 250,000,000 shares
International Growth Fund, Class B 250,000,000 shares
International Growth Fund, Class Y 250,000,000 shares
Asset Strategy Fund, Class B 250,000,000 shares
Asset Strategy Fund, Class Y 250,000,000 shares
High Income Fund, Class B 250,000,000 shares
High Income Fund, Class Y 250,000,000 shares
Science and Technology Fund, Class B 250,000,000 shares
Science and Technology Fund, Class Y 250,000,000 shares
The aggregate number of shares of all classes of stock of the Corporation
remains at Six Billion (6,000,000,000) shares of capital stock, the par value
remains $0.01 per share, and the aggregate par value of all authorized stock
remains Sixty Million Dollars ($60,000,000.00).
THIRD: The capital stock of the Corporation is divided into series and
classes and there are no changes in the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as shares of capital stock as set forth
in the Corporation's Articles of Incorporation, except as follows:
(1) The Class B stock of each series shall be subject a contingent
deferred sales charge and a Rule 12b-1 fee, as determined by the
Board of Directors of the Corporation from time to time;
(2) The Class Y stock of each series shall not be subject to either a
front-end load or contingent deferred sales charge and shall be
subject to Rule 12b-1 fees and a shareholder servicing fee which
differs from that of the Class B shares of each series.
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
____ day of ________, 1997.
-------------------------------
Sharon K. Pappas, Vice President
Attest: _________________
Sheryl Strauss
Assistant Secretary
The undersigned, Vice President of Waddell & Reed Funds, Inc. who executed
on behalf said Corporation the foregoing Articles Supplementary, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles Supplementary to be the act of said
Corporation and further certifies that, to the best of her knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
WADDELL & REED FUNDS, INC.
By:
--------------------------------
Sharon K. Pappas, Vice President
EX-99B.5-wrfima.doc
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT, made this 31st day of August, 1992, by and between WADDELL &
REED FUNDS, INC. (hereinafter called "Fund"), and WADDELL & REED INVESTMENT
MANAGEMENT COMPANY,
WITNESSETH:
In consideration of the mutual promises and agreements herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, it is hereby agreed by and between the parties hereto as follows:
I. In General
Waddell & Reed Investment Management Company agrees to act
as investment adviser to Fund with respect to the investment of its assets and
in general to supervise the investments of Fund, subject at all times to the
direction and control of the Board of Directors of Fund, all as more fully set
forth herein.
II. Duties of Waddell & Reed Investment Management Company with
respect to investment of assets of Fund
A. Waddell & Reed Investment Management Company shall
regularly provide investment advice to Fund and shall, subject to the succeeding
provisions of this section, continuously supervise the investment and
reinvestment of cash, securities or other property comprising the assets of the
investment portfolios of Fund; and in furtherance thereof, Waddell & Reed
Investment Management Company shall:
1. obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or one or more of
the portfolios of Fund, and whether concerning the individual companies whose
securities are included in one or more of Fund's portfolios or the industries in
which they engage, or with respect to securities which Waddell & Reed Investment
Management Company considers desirable for inclusion in one or more of Fund's
portfolios;
2. furnish continuously an investment program for each
of the portfolios of Fund;
3. determine what securities shall be purchased or
sold by Fund;
4. take, on behalf of Fund, all actions which appear
to Waddell & Reed Investment Management Company necessary to carry into effect
such investment programs and supervisory functions as aforesaid, including the
placing of purchase and sale orders.
B. Waddell & Reed Investment Management Company shall make
appropriate and regular reports to the Board of Directors of Fund on the actions
it takes pursuant to Section II.A. above. Any investment programs furnished by
Waddell & Reed Investment Management Company under this section, or any
supervisory function taken hereunder by Waddell & Reed Investment Management
Company shall at all times conform to and be in accordance with any requirements
imposed by:
1. the provisions of the Investment Company Act of
1940 and any rules or regulations in force thereunder;
2. any other 1applicable provision of law;
3. the provisions of the Articles of Incorporation of
Fund as amended from time to time;
4. the provisions of the Bylaws of Fund as amended
from time to time;
5. the terms of the registration statement of Fund, as
amended from time to time, under the Securities Act of 1933 and the Investment
Company Act of 1940.
C. Any investment programs furnished by Waddell & Reed
Investment Management Company under this section or any supervisory functions
taken hereunder by Waddell & Reed Investment Management Company shall at all
times be subject to any directions of the Board of Directors of Fund, its
Executive Committee, or any committee or officer of Fund acting pursuant to
authority given by the Board of Directors.
III. Allocation of Expenses
The expenses of Fund and the expenses of Waddell & Reed
Investment Management Company in performing its functions under this Agreement
shall be divided into two classes, to wit: (i) those expenses which will be
paid in full by Waddell & Reed Investment Management Company as set forth in
subparagraph "A" hereof, and (ii) those expenses which will be paid in full by
Fund, as set forth in subparagraph "B" hereof.
A. With respect to the duties of Waddell & Reed Investment
Management Company under Section II above, it shall pay in full, except as to
the brokerage and research services acquired through the allocation of
commissions as provided in Section IV hereinafter, for (a) the salaries and
employment benefits of all employees of Waddell & Reed Investment Management
Company who are engaged in providing these advisory services; (b) adequate
office space and suitable office equipment for such employees; and (c) all
telephone and communications costs relating to such functions. In addition,
Waddell & Reed Investment Management Company shall pay the fees and expenses of
all directors of Fund who are employees of Waddell & Reed Investment Management
Company or an affiliated corporation and the salaries and employment benefits of
all officers of Fund who are affiliated persons of Waddell & Reed Investment
Management Company.
B. Fund shall pay in full for all of its expenses which are
not listed above (other than those assumed by Waddell & Reed Investment
Management Company or one of its affiliates in its capacity as principal
underwriter of the shares of Fund, as Shareholder Servicing Agent or as
Accounting Services Agent for Fund), including (a) the costs of preparing and
printing prospectuses and reports to shareholders of Fund, including mailing
costs; (b) the costs of printing all proxy statements and all other costs and
expenses of meetings of shareholders of Fund (unless Fund and Waddell & Reed
Investment Management Company shall otherwise agree); (c) interest, taxes,
brokerage commissions and premiums on fidelity and other insurance; (d) audit
fees and expenses of independent accountants and legal fees and expenses of
attorneys, but not of attorneys who are employees of Waddell & Reed Investment
Management Company or an affiliated company; (e) fees and expenses of its
directors not affiliated with Waddell & Reed, Inc.; (f) custodian fees and
expenses; (g) fees payable by Fund under the Securities Act of 1933, the
Investment Company Act of 1940, and the securities or "Blue-Sky" laws of any
jurisdiction; (h) fees and assessments of the Investment Company Institute or
any successor organization; (i) such nonrecurring or extraordinary expenses as
may arise, including litigation affecting Fund, and any indemnification by Fund
of its officers, directors, employees and agents with respect thereto; (j) the
costs and expenses provided for in any Shareholder Servicing Agreement or
Accounting Services Agreement, including amendments thereto, contemplated by
subsection C of this Section III. In the event that any of the foregoing shall,
in the first instance, be paid by Waddell & Reed Investment Management Company,
Fund shall pay the same to Waddell & Reed Investment Management Companyon
presentation of a statement with respect thereto.
C. Waddell & Reed Investment Management Company or an
affiliate of Waddell & Reed Investment Management Company, may also act as (i)
transfer agent or shareholder servicing agent of Fund and/or as (ii) accounting
services agent of Fund if at the time in question there is a separate agreement,
"Shareholder Servicing Agreement" and/or "Accounting Services Agreement,"
covering such functions between Fund and Waddell & Reed Investment Management
Company, or such affiliate. The corporation, whether Waddell & Reed Investment
Management Company, or its affiliate, which is the party to either such
Agreement with Fund is referred to as the "Agent." Each such Agreement shall
provide in substance that it shall go into effect, or be amended, or a new
agreement covering the same topics between Fund and the Agent may be entered
into, only if the terms of such Agreement, such amendment or such new agreement
have been approved by the Board of Directors of Fund, including the vote of a
majority of the directors who are not "interested persons" as defined in the
Investment Company Act of 1940, of either party to the Agreement, such amendment
or such new agreement (considering Waddell & Reed Investment Management Company
to be such a party even if at the time in question the Agent is an affiliate of
Waddell & Reed Investment Management Company), cast in person at a meeting
called for the purpose of voting on such approval. Such a vote is referred to
as a "disinterested director" vote. Each such Agreement shall also provide in
substance for its continuance, unless terminated, for a specified period which
shall not exceed two years from the date of its execution and from year to year
thereafter only if such continuance is specifically approved at least annually
by a disinterested director vote, and that any disinterested director vote shall
include a determination that (i) the Agreement, amendment, new agreement or
continuance in question is in the best interests of Fund and its shareholders;
(ii) the services to be performed under the Agreement, the Agreement as amended,
new agreement or agreement to be continued are services required for the
operation of Fund; (iii) the Agent can provide services the nature and quality
of which are at least equal to those provided by others offering the same or
similar services; and (iv) the fees for such services are fair and reasonable in
light of the usual and customary charges made by others for services of the same
nature and quality. Any such Agreement may also provide in substance that any
disinterested director vote may be conditioned on the favorable vote of the
holders of a majority (as defined in or under the Investment Company Act of
1940) of the outstanding shares of each class or series of Fund. Any such
Agreement shall also provide in substance that it may be terminated by the Agent
at any time without penalty upon giving Fund one hundred twenty (120) days'
written notice (which notice may be waived by Fund) and may be terminated by
Fund at any time without penalty upon giving the Agent sixty (60) days' written
notice (which notice may be waived by the Agent), provided that such termination
by Fund shall be directed or approved by the vote of a majority of the Board of
Directors of Fund in office at the time or by the vote of the holders of a
majority (as defined in or under the Investment Company Act of 1940) of the
outstanding shares of each class or series of Fund.
IV. Brokerage
(a) Waddell & Reed Investment Management Company may select
brokers to effect the portfolio transactions of Fund on the basis of its
estimate of their ability to obtain, for reasonable and competitive commissions,
the best execution of particular and related portfolio transactions. For this
purpose, "best execution" means prompt and reliable execution at the most
favorable price obtainable. Such brokers may be selected on the basis of all
relevant factors including the execution capabilities required by the
transaction or transactions, the importance of speed, efficiency, or
confidentiality, and the willingness of the broker to provide useful or
desirable investment research and/or special execution services. Waddell & Reed
Investment Management Company shall have no duty to seek advance competitive
commission bids and may select brokers based solely on its current knowledge of
prevailing commission rates.
(b) Subject to the foregoing, Waddell & Reed Investment
Management Company shall have discretion, in the interest of Fund, to direct the
execution of its portfolio transactions to brokers who provide brokerage and/or
research services (as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934) for Fund and/or other accounts for which
Waddell & Reed Investment Management Company or one or more of its affiliates
exercise "investment discretion" (as that term is defined in Section 3(a)(35) of
the Securities Exchange Act of 1934); and in connection with such transactions,
to pay commission in excess of the amount another adequately qualified broker
would have charged if Waddell & Reed Investment Management Company determines,
in good faith, that such commission is reasonable in relation to the value of
the brokerage and/or research services provided by such broker, viewed in terms
of either that particular transaction or the overall responsibilities of Waddell
& Reed Investment Management Company and its investment advisory affiliates with
respect to the accounts for which they exercise investment discretion. In
reaching such determination, Waddell & Reed Investment Management Company will
not be required to attempt to place a specified dollar amount on the brokerage
and/or research services provided by such broker; provided that Waddell & Reed
Investment Management Company shall be prepared to demonstrate that such
determinations were made in good faith, and that all commissions paid by Fund
over a representative period selected by its Board of Directors were reasonable
in relation to the benefits to Fund.
(c) Subject to the foregoing provisions of this Paragraph
"IV," Waddell & Reed Investment Management Company may also consider sales of
Fund's shares and shares of investment companies distributed by Waddell & Reed,
Inc. or one of its affiliates, and portfolio valuation or pricing services as a
factor in the selection of brokers to execute brokerage and principal portfolio
transactions.
V. Compensation of Waddell & Reed Investment Management Company
As compensation in full for services rendered and for the
facilities and personnel furnished under sections I, II, and IV of this
Agreement, Fund will pay to Waddell & Reed Investment Management Company for
each day the fees specified in Exhibit A hereto.
The amounts payable to Waddell & Reed Investment Management
Company shall be determined as of the close of business each day; shall, except
as set forth below, be based upon the value of net assets computed in accordance
with the Articles of Incorporation of Fund; and shall be paid in arrears
whenever requested by Waddell & Reed Investment Management Company. In
computing the value of the net assets of Fund, there shall be excluded the
amount owed to Fund with respect to shares which have been sold but not yet paid
to Fund by Waddell & Reed, Inc.
Notwithstanding the foregoing, if the laws, regulations or
policies of any state in which shares of Fund are qualified for sale limit the
operation and management expenses of Fund, Waddell & Reed Investment Management
Company will refund to Fund the amount by which such expenses exceed the lowest
of such state limitations.
VI. Undertakings of Waddell & Reed Investment Management
Company; Liabilities
Waddell & Reed Investment Management Company shall give to
Fund the benefit of its best judgment, efforts and facilities in rendering
advisory services hereunder.
Waddell & Reed Investment Management Company shall at all
times be guided by and be subject to Fund's investment policies, the provisions
of its Articles of Incorporation and Bylaws as each shall from time to time be
amended, and to the decision and determination of Fund's Board of Directors.
This Agreement shall be performed in accordance with the
requirements of the Investment Company Act of 1940, the Investment Advisers Act
of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to
the extent that the subject matter of this Agreement is within the purview of
such Acts. Insofar as applicable to Waddell & Reed Investment Management
Company, as an investment adviser and affiliated person of Fund, Waddell & Reed
Investment Management Company shall comply with the provisions of the Investment
Company Act of 1940, the Investment Advisers Act of 1940 and the respective
rules and regulations of the Securities and Exchange Commission thereunder.
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the part
of Waddell & Reed Investment Management Company, it shall not be subject to
liability to Fund or to any stockholder of Fund for any act or omission in the
course of or connected with rendering services thereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
VII. Duration of this Agreement
This Agreement shall become effective at the start of
business on the date hereof and shall continue in effect, unless terminated as
hereinafter provided, for a period of one year and from year-to-year thereafter
only if such continuance is specifically approved at least annually by the Board
of Directors, including the vote of a majority of the directors who are not
parties to this Agreement or "interested persons" (as defined in the Investment
Company Act of 1940) of any such party, cast in person at a meeting called for
the purpose of voting on such approval, or by the vote of the holders of a
majority (as so defined) of the outstanding voting securities of each class or
series of Fund and by the vote of a majority of the directors who are not
parties to this Agreement or "interested persons" (as so defined) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval.
VIII. Termination
This Agreement may be terminated by Waddell & Reed
Investment Management Company at any time without penalty upon giving Fund one
hundred twenty (120) days' written notice (which notice may be waived by Fund)
and may be terminated by Fund at any time without penalty upon giving Waddell &
Reed Investment Management Company sixty (60) days' written notice (which notice
may be waived by Waddell & Reed Investment Management Company), provided that
such termination by Fund shall be directed or approved by the vote of a majority
of the Board of Directors of Fund in office at the time or by the vote of a
majority (as defined in the Investment Company Act of 1940) of the outstanding
voting securities of Fund. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for this purpose having the
meaning defined in Section 2(a)(4) of the Investment Company Act of 1940 and the
rules and regulations thereunder.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to
be executed by their duly authorized officers and their corporate seal to be
hereunto affixed, all as of the day and year first above written.
(Seal) WADDELL & REED FUNDS, INC.
By:/s/Rodney O. McWhinney
-------------------------
Rodney O. McWhinney
Vice President
ATTEST:
By: /s/Sharon K. Pappas
- ----------------------
Sharon K. Pappas
Secretary
(Seal) WADDELL & REED INVESTMENT
MANAGEMENT COMPANY
By: /s/Robert L. Hechler
------------------------
Robert L. Hechler
Executive Vice President
ATTEST:
By: /s/Rodney O. McWhinney
- --------------------------
Rodney O. McWhinney
Secretary
<PAGE>
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
WADDELL & REED FUNDS, INC.
FEE SCHEDULE
(As amended April 20, 1995 to include International Growth Fund and Asset
Strategy Fund)
(As amended July 31, 1997 to include High Income Fund and Science and Technology
Fund)
A cash fee computed each day on net asset value for the series of the Fund and
at the annual rates listed below:
Total Return Fund .71%
Growth Fund .81%
Limited-Term Bond Fund .56%
Municipal Bond Fund .56%
International Growth Fund .81%
Asset Strategy Fund .81%
High Income Fund .66%
Science and Technology Fund .71%
EX-99.B8-wrca
CUSTODIAN AGREEMENT
AGREEMENT made as of the 31st day of July, 1997 between Waddell & Reed
Funds, Inc. Science and Technology Fund (the "Fund") and UMB Bank, n.a. (the
"Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions, or
pursuant to the provisions of any futures margin procedural agreement among the
Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions, the
Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts due
and payable to the Fund with respect to portfolio securities and other Assets;
(b) promptly credit to the account of the Fund all income and other payments
relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend to
all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the Custodian
shall take such action as the Fund deems necessary or appropriate to cause each
deposit account established by the Custodian pursuant to this Section 2.21 to be
insured to the maximum extent possible by all applicable deposit insurers,
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions, the
Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall provide
any assistance reasonably requested by the Fund in the preparation of reports to
Fund shareholders and others, audits of accounts, and other ministerial matters
of like nature. The Custodian shall maintain complete and accurate records with
respect to securities and other Assets held for the accounts of the Fund as
required by the rules and regulations of the SEC applicable to investment
companies registered under the 1940 Act, including, but not limited to: (a)
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
transfer, (ii) securities in physical possession, (iii) securities borrowed,
loaned or collateralizing obligations of the Fund, (iv) monies borrowed and
monies loaned (together with a record of the collateral therefor and
substitutions of such collateral), and (v) dividends and interest received; and
(c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from the Fund's independent certified
public accountants with respect to the Custodian's activities hereunder in
connection with the preparation of the Fund's Form N-1A and the Fund's Form N-
SAR or other periodic reports to the SEC and with respect to any other
requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. In the event that the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its sole discretion, provide an
overdraft (an "Overdraft") to the Fund in an amount sufficient to allow the
completion of such payment. Any Overdraft provided hereunder: (a) shall be
payable on the next business day, unless otherwise agreed by the Fund and the
Custodian; and (b) shall accrue interest from the date of the Overdraft to the
date of payment in full by the Fund at a rate agreed upon in writing, from time
to time, by the Custodian and the Fund. The purpose of such Overdrafts is to
temporarily finance extraordinary or emergency expenses not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing ("Overdraft Notice") of any Overdraft by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. The
Custodian shall have a right of set-off against all Assets (except for Assets
held in a segregated margin account or otherwise pledged in connection with
options or futures contracts held for the benefit of the Fund and for Assets
allocated to any other Overdraft or loan made hereunder); provided, however, the
Custodian shall promptly notify the Fund in writing of any intent to exercise a
right of set-off against Assets hereunder and shall not exercise any such right
of set-off against Assets hereunder unless and until the Fund has failed to pay
(within ten (10) days after the Fund's receipt of such notice of intent to
exercise a right of set-off), any Overdraft, together with all accrued interest
thereon. Notwithstanding the provisions of any applicable law, including,
without limitation, the Uniform Commercial Code, the only rights or remedies
which the Custodian is entitled to with respect to Overdrafts is the right of
set-off granted herein.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time and
from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940
Act or any trust company or other entity any of which meet requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the event
that the Fund shall invest in a security or other Asset to be held in a country
in which no Foreign Sub-Subcustodian is authorized to act, the Custodian shall,
or shall cause the Domestic Subcustodian to, promptly notify the Fund in writing
by facsimile transmission or in such other manner as the Fund and Custodian
shall agree in writing of the unavailability of an approved Foreign Sub-
Subcustodian in such country; and upon the receipt of Special Instructions, the
Custodian shall, or shall cause the Domestic Subcustodian to, appoint or approve
any Person (as hereinafter defined) designated by the Fund in such Special
Instructions, to hold such security or other Asset. (Any Person appointed or
approved as a sub-subcustodian pursuant to this Section 4.02(b) is hereinafter
referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the Custodian
for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not be
liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything to
the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and deliver
to the Custodian such proxies, powers of attorney or other instruments as may
be reasonable and necessary or desirable in connection with the performance by
the Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement, provided that the exercise
by the Custodian or any Subcustodian of any such rights shall in all events be
in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Custodian to the Fund, at all times during the term
of this Agreement: (i) the Custodian is duly organized under the laws of its
jurisdiction of organization and qualifies to serve as a custodian to open-end
management investment companies under the provisions of the 1940 Act; and (ii)
the execution, delivery and performance by the Custodian of this Agreement are
(w) within its power (x) have been duly authorized by all necessary action, and
(y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which are
included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
Waddell & Reed Funds, Inc. Science and Technology Fund
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
UMB Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7772
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
WADDELL & REED FUNDS, INC. UMB BANK, n.a.
SCIENCE AND TECHNOLOGY FUND
By: --------------------- By: ------------------
Name: Sharon K. Pappas Name: Ralph R. Santoro
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
WADDELL & REED FUNDS, INC. SCIENCE AND TECHNOLOGY FUND
AND
UMB BANK, n.a.
Dated as of July 31, 1997
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Custodians
Country Sub-Custodian Depository
Argentina Citibank, n.a. CDV; CRYL
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, Brazil BOVESPA, CLC
Canada Canadian Imperial Bank of Commerce CDS; The Bank of Canada
Chile Citibank, n.a. None
China Standard Chartered Bank SSCCRC; SSCC
Czech Republic Ceskoslovenska Obchodni Banka A.S. CNB; SCP
Denmark Den Danske Bank VP
Finland Merita Securities Association;
Finnish Central Securities
Depository Ltd.
France Banque Indosuez SICOVAM; Banque de France
Germany Deutsche Bank KASSENVEREIN
Hungary Citibank, N.A. KELER Ltd.
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing
Company
India Citibank, N.A., Mumbai National Securities
Depository
Limited
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Israel Bank Hapoalim B.M. TASE Clearinghouse Ltd.
Italy Banca Commerciale Italiana MONTE TITOLI, Banca
D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia Hong Kong Bank Malaysia Berhad MCD; Bank Negara
Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank
NECIGER; De Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a.
Phillipines Central
Depository, Inc.
Poland Bank Polska Kasa Opieki S.A. NPB
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland
SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United Kingdom Midland Securities PLC CMO; CGO; CrestCo
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
WADDELL & REED FUNDS, INC. SCIENCE AND TECHNOLOGY FUND
AND
UMB BANK, n.a.
Dated as of July 31, 1997
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(c)For each futures/options contract written 25.00
(d)For each principal/interest paydown 6.00
(e)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note:Fee Schedule eliminates sub-custodian asset and transaction-based out-of-
pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at
the annual rate of:
.0004 on all short-term dollar denominated assets of the United
Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of Euroclear issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-wrappcb
(REVISED)
Waddell & Reed, Inc.
P.O. Box 29217 Waddell & Reed Funds Division Office
Stamp
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
________________________________________________________________________________
__________
REGISTRATION TYPE (one only) Trans Code: _________ Date Transmitted:
________________
________________________________________________________________________________
__________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/Right Of Survivorship [ ] Declaration of
Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other:
________________________________________
(Use this section for Retirement Plans
with
Custodians other than Fiduciary Trust
Co.)
________________________________________________________________________________
___________
RETIREMENT PLAN (Fiduciary Trust Co. -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] SIMPLE IRA (For a new Plan, attach
MRP1659-AA)
[ ] Rollover (Qual. plan lump [ ] Owner-Only Profit Sharing Plan
sum distr.) (For a new Plan, attach MRP0651-AP)
[ ] Simplified Pension Plan (SEP) [ ] Owner-Only Money Purchase Plan
(For a new Plan, attach (For a new Plan, attach MRP0651-AM)
MRP1166-AA)
[ ] TSA _____________________________________
[ ] 457 Employer's Name (Do Not Abbreviate)
(For a new Plan,
______________________________________________________
attach MRP1401) Street City State
Zip
________________________________________________________________________________
______
REGISTRATION [ ]NEW ACCOUNT or [ ]NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-
[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
______
Individual Name (exactly as desired) If spousal IRA, name of working spouse
______________________
Month Day Year
________________________________________________________________________________
______
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
______________________ ______________
Month Day Year Relationship (For grouping purposes)
________________________________________________________________________________
______
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
CITIZENSHIP __________________________
(Required in VA.)
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:[][]-
[][][][][][][]
________________________________________________________________________________
_______
BENEFICIARY: For Retirement Plan Accounts Only
Full Name of Beneficiary Tax Identification Number Date of Birth
________________________ _________________________ _____________
________________________ _________________________ _____________
________________________ _________________________ _____________
Relationship Percent
____________ _______%
____________ _______%
____________ _______%
________________________________________________________________________________
_______
INVESTMENTS: Make check payable to Waddell & Reed
101-W&R Total Return 102-W&R Growth 103-W&R Limited-
Term Bond
104-W&R Municipal Bond 105-W&R International Growth 106-W&R Asset
Strategy
(not available for
Retirement Plans)
________________________________________________________________________________
_______
IF RETIREMENT PLAN
FUND Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
Total $__________
Monthly DIV/C.G. Distr**
TOP From AIS* (Assumes RR)
Another Carrier (if any) RR CC CR
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
[] $______________ [] [] []
$______________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash/Div
/Cap Gain CR=Cash Div/Reinvest Cap Gain
________________________________________________________________________________
___________
GROUP #[ ][ ][ ][ ][ ][ ][ ]
________________________________________________________________________________
___________
CONFIDENTIAL DATA (Required for New Accounts/New Products) 1. Marital Status:
____ (Required in VA.) 2. Gross Family Income: $____ 3. Taxable Income $_____ 4.
Number of Dependents ____ 5. Occupation:_________________________ 6. Employer
Name: ________________________ 7. Employer Address:
________________________________________
8. Savings and Liquid Assets: $_____ 9. Other Assets (excluding home,
furnishings, cars): $_____ 10. Net Worth (Assets minus liabilities): $___ 11.
Are you associated with an NASD Member? Yes ___ No ___ 12. Investment Objectives
(mark all that apply):
[ ] Retirement Savings [ ] Children's College [ ]
Reserves
[ ] Income [ ] Other needs/goals (specify in Special
Remarks)
13. Special Remarks/Considerations:
_______________________________________________
________________________________________________________________________________
___
14. Residence Address:
____________________________________________________________
(if different from Street City State
Zip
Mailing Address on
Reverse Side)
15. Was this investment solicited by a W&R Representative? Yes/No
16. Has any beneficial owner of this account conducted any prior investment
activity? Yes/No
If yes, which owner(s) _____________________________________________________
17. Are proceeds from the sale of another security being used to open this
account? Yes/No
If yes, specify:
___________________________________________________________________
(Questions 15, 16 and 17 are required in CT.)
________________________________________________________________________________
____________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Funds
selected.
* I (we) understand that there may be a deferred sales charge on redemption
of shares
held less than 4 years.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan
and Custody Agreement and agree to the terms and conditions set forth
therein,
and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other
taxpayer identification number shown on reverse side is correct (or I am
waiting for
a number to be issued to me) and (strike the following if not true) that I
am not
subject to tax withholding because (a) I am exempt from backup
withholding, or (b) I
have not been notified by the IRS that I am subject to backup withholding
as a
result of a failure to report all interest and dividends, or (c) the IRS
has
notified me that I am no longer subject to backup withholding.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup
withholding."
_________________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
_________________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ____________________________
Representative Signature Date
[] [] [] [] []
Representative Number
If a Retirement Plan, Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody Agreement, as evidence
by the authorized signature/initials in the adjacent OSJ box. [OSJ: (H.O.USE)
]
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications ____________________________________
[] Check enclosed $___________________________
[] Other _____________________________________
WRF3000(1/97)
EX-99.B11-wrconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-45961 of our report dated May 7, 1997 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectus, which is also a part of such Registration
Statement.
Deloitte & Touche LLP
Kansas City, Missouri
May 15, 1997
EX-99.B11-wrprcon
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated May
10, 1996, relating to the statement of changes in net assets for the year ended
March 31, 1996 and the financial highlights for each of the various periods
ended march 31, 1996 of Waddell & Reed Funds, Inc., which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement.
Price Waterhouse LLP
Kansas City, Missouri
May 16, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Waddell & Reed Funds, Inc.
In our opinion, the accompanying statement of changes in net assets and the
financial highlights present fairly, in all material respects, the changes in
the net assets and financial highlights of each of the six mutual funds
comprising Waddell & Reed Funds, Inc. (the "Corporation") for the year ended
March 31, 1996 and for each of the periods in the period ended March 31, 1996,
respectively, in conformity with generally accepted accounting principles. This
statement of changes in net assets and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. We have not audited the financial statements of the Waddell & Reed
Funds, Inc. for the twelve month period ended March 31, 1997.
Price Waterhouse LLP
Kansas City, Missouri
May 10, 1996
EX-99.B14-22-CRP1665
Waddell & Reed, Inc. RETIREMENT PLAN
P. 0. Box 29217 DISTRIBUTION/WITHDRAWAL
Shawnee Mission, KS 66201-9217
- -----------------------------------------------------------------------------
This form may be used for one account with more than one fund, if Reason for
Withdrawal and Requested Transaction are the same for all funds. Otherwise,
this form may be used for one account and ONE FUND ONLY.
Name: _____________________ S.S.# _____________ Date of Birth ___________
MO/DA/YR
Account # ___________________ Fund(s) ______________ Plan Name ______________
Plan Type: __ IRA __ Rollover __ SEP __ SIMPLE IRA __ SIMPLE 401k __ TSA
__ Profit Sharing __ Money Purchase __ 401k __ 457 Plan __ Owner Only Profit
Sharing (Keogh) __ Owner Only Money Purchase (Keogh) __ Defined Benefit
- -----------------------------------------------------------------------------
DISTRIBUTION REASON
__ Normal Distribution: I am 591/2 years of age or older
__ Premature Distribution: I am under 591/2 years of age
__ Rollover: Investment must be made within sixty days to new IRA Plan
__ Transfer/Redemption of assets to new Custodian/Carrier
__ Disability: I am unable to engage in any substantial gainful activity
__ Unforeseen Emergency (available to 457 Plans only)
__ Separation from service
__ Financial Hardship (available to TSA and Qual. Plans only)
__ Plan Termination
__ Divorce: Attach a Qualified Domestic Relations Order
__ Death: Attach Death Certificate, Tax Waiver and Beneficiary Form
__ IRA Medical Expenses
__ IRA Medical Premiums: I have been separated from employment and have
received unemployment compensation for 12 consecutive weeks.
__ Excess Contribution: Remove my excess contribution of $ _______ made for
the _______ tax year.
Please check one:
__ Issue the check to me, including any net income earned on the excess
amount.
__ Reclassify the excess monies as a: __ Current year contribution __ Prior
year contribution (January 1 through April 15 only)
Note: In order to establish periodic withdrawals, complete ONLY Flexible
Withdrawal Service (FWS) Application Form CUFO999.
- -----------------------------------------------------------------------------
Specify REDEEM or TRANSFER then complete ONE set of instructions.
NOTE: TSA, OWNER ONLY (KEOGH) AND CORPORATE PLANS ARE SUBJECT TO MANDATORY
20% WITHHOLDING Applicable withdrawal fees will be taken from proceeds
of distributions.
__ REDEEM: Indicate: dollars ______________, shares ____________ or __ all
Make payable to: ___ Shareholder or OR ___ Other Custodian/Carrier
as Follows:
___ Alternate Payee/Address as follows: Note: Not subject
to Mandatory 20%
Withholding
_______________________________ __________________________________
Name Name of Custodian/Carrier
_______________________________ __________________________________
Street Mailing Address
_______________________________ __________________________________
City State Zip City State Zip
TRANSFER: Indicate: dollars ____________, shares _________________, or __ all
__ Existing Waddell & Reed Account Number ______________________
If reinvesting excess contribution please indicate year of contribution:
__________________
__ New Registration OR __ New Custodian/Carrier as Follows:
(Change in Custodian Name only;
investments will remain in Waddell
& Reed products)
___________________________________ _________________________________
Individual Name (exactly as desired) Name of Custodian/Carrier
______________________________________ _________________________________
Joint Name (if any, exactly as desired) Individual Name (exactly as desired)
_____________________________ _________________________________
Street Mailing Address
_____________________________ _________________________________
City State Zip City State Zip
Tax ID# __________________________
- -----------------------------------------------------------------------------
FEDERAL INCOME TAX WITHHOLDING FOR IRA, SEP AND SIMPLE IRA PLANS ONLY
__ The undersigned directs that Federal Income Tax be withheld from the above
described Distribution/Withdrawal.
*IF NOT MARKED, FEDERAL INCOME TAX WILL NOT BE WITHHELD FROM IRA, SEP OR SIMPLE
IRA PLANS, ALL OTHER PLANS SUBJECT TO MANDATORY 20% WITHHOLDING.
SIGNATURE REQUIRED ON REVERSE SIDE OF FORM
AUTHORIZATION FOR RETIREMENT PLAN TRANSACTIONS
I hereby authorize the transactions indicated and acknowledge that I fully
understand the tax consequences of the requested transaction. (In the case of
Owner Only or Corporate Plans, the signature hereon constitutes the transfer of
liability for withholding of Federal Income Taxes to the Custodian.) If
authorizing payments to a married Owner Only (Keogh), Title I TSA or Corporate
Plan participant individually, I certify that the participant's spouse has
separately waived any claim to the joint payments. Sign exactly as name(s)
appear in registration.
Under penalties of perjury, I certify that the social security number or other
taxpayer identification number shown on reverse side is correct (or I am waiting
for a number to be issued to me) and (strike the following if not true) that I
am not subject to backup withholding because (a) I am exempt from backup
withholding, or (b) I have not been notified by the IRS that I am subject to
backup withholding as a result of a failure to report all interest and
dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
"The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup
withholding."
____________________________ ____________________________ ______________
Signature of Plan Participant Social Security or Date
Taxpayer ID Number
__________________________ _____________________________ ______________
Signature of Plan Administrator Title Date
(see additional information below)
- -----------------------------------------------------------------------------
ADDITIONAL INFORMATION
Signature of the Plan Administrator is required for Corporate, Owner Only Plans
(Keogh), Texas ORP, Title I TSA and 457 Plans.
Corporate Plans (Please provide the following):
Date of retirement or separation of service:
___________/_____________/_____________
Numbers of hours completed within current plan year to termination:
_________________
Completed copies of the following forms:
Special Tax Notice Regarding Plan Payments (Form # CRP1666)
Qualified Joint and Survivor Annuity Waiver (Form # CRP1667)
Spousal Consent on Early Distribution (Form # CRP1668)
For distributions greater than $3,500, attach the Consent to Lump Sum
Distribution Exceeding $3,500 (Form # CRP1669)
TSA Plans
Attach a copy of the Special Tax Notice Regarding Plan Payments (Form #CRP1666)
Check Any Items Enclosed With This Form
__ Declaration Trust Revocable (CUF 0022PL)
__ FWS Application (CUF 0999)
__ Statement of Intention (CUF 0671 - United Group Only)
__ Automatic Investment Service (CUF 0714)
__ Check Enclosed (including set-up fee, if any) #_________
__ Additional Applications
__ Other: _________________________________________
CRP1665
EX-99.B14-23-CRP1666
Special Tax Notice Regarding Plan Payments
This notice contains important information you will need before you decide how
to receive your benefits from the ____________________________________ Plan.
Summary
A payment from the Plan that is eligible for "rollover" can be taken in two
ways. You can have all or any portion of your payment either 1) PAID IN A
"DIRECT ROLLOVER" or 2) PAID TO YOU. A rollover is a payment of your Plan
benefits to your individual retirement arrangement (IRA) or to another employer
plan. This choice will affect the tax you owe.
If you choose a DIRECT ROLLOVER
Your payment will not be taxed in the current year and no income tax will be
withheld.
Your payment will be made directly to your IRA or, if you choose, to another
employer plan that accepts your rollover.
Your payment will be taxed later when you take it out of the IRA or the employer
plan.
If you choose to have your Plan benefits PAID TO YOU
You will receive only 80% of the payment, because the plan administrator is
required to withhold 20% of the payment and send it to the IRS as income tax
withholding to be credited against your taxes.
Your payment will be taxed in the current year unless you roll it over. You may
be able to use special tax rules that could reduce the tax you owe. However, if
you receive the payment before age 59 1/2, you also may have to pay an
additional 10% tax.
You can roll over the payment by paying it to your IRA or to another employer
plan that accepts your rollover within 60 days of receiving the payment. The
amount rolled over will not be taxed until you take it out of the IRA or
employer plan.
If you want to roll over 100% of the payment to an IRA or an employer plan, YOU
MUST FIND OTHER MONEY TO REPLACE THE 20% THAT WAS WITHHELD. If you roll over
only the 80% that you received, you will be taxed on the 20% that was withheld
and that is not rolled over.
I. Payments That Can and Cannot be Rolled Over
Payments from the Plan may be "eligible rollover distributions." This means
that they can be rolled over to an IRA or to another employer plan that accepts
rollovers. Your Plan administrator should be able to tell you what portion of
your payment is an eligible rollover distribution. The following types of
payments CANNOT be rolled over:
Non-Taxable Payments. In general, only the "taxable portion" of your payment is
an eligible rollover distribution. If you have made "after-tax" employee
contributions to the plan, these contributions will be non-taxable when they are
paid to you, and they cannot be rolled over. (After-tax employee contributions
generally are contributions you made from your own pay that were already taxed.)
Payments Spread Over Long Periods. You cannot rollover a payment if it is part
of a series of equal (or almost equal) payments that are made at least once a
year and that will last for
your lifetime (or your life expectancy), or
your lifetime and your beneficiary's lifetime (or life expectancies), or
a period of ten years or more.
Required Minimum Payments. Beginning January 1,1997 any active employee who is
a participant in a qualified plan may defer the beginning date of their
mandatory distributions to the later of retirement or reaching age 70 1/2. Once
the beginning date is reached, a certain portion of your payment cannot be
rolled over because it is a "required minimum payment" that must be paid to you.
II. Direct Rollover
You can choose a direct rollover of all or any portion of your payment that is
an "eligible rollover distribution," as described above. In a direct rollover,
the eligible rollover distribution is paid directly from the Plan to an IRA or
another employer plan that accepts rollovers. If you choose a direct rollover,
you are not taxed on a payment until you later take it out of the IRA or the
employer plan.
Direct Rollover to an IRA. You can open an IRA to receive the direct rollover.
(The term "IRA," as used in this notice, includes individual retirement accounts
and individual retirement annuities.) If you choose to have your payment made
directly to an IRA, contact an IRA sponsor (usually a financial institution) to
find out how to have your payment made in a direct rollover to an IRA at that
institution. If you are unsure of how to invest your money, you can temporarily
establish an IRA to receive the payment. However, in choosing an IRA you may
wish to consider whether the IRA you choose will allow you to move all or a part
of your payment to another IRA at a later date, without penalties or other
limitations. See IRA Publication 590, Individual Retirement Arrangements, for
more information on IRAs (including limits on how often you can roll over
between IRAs).
Direct Rollover to a Plan. If you are employed by a new employer that has a
plan, and you want a direct rollover to that plan, ask the administrator of that
plan whether it will accept your rollover. An employer plan is not legally
required to accept a rollover. If your new employer's plan does not accept a
rollover, you can choose a direct rollover to an IRA.
Direct Rollover of a Series of Payments. If you receive eligible rollover
distributions that are paid in a series for less than ten years, your choice to
make or not make a direct rollover for a payment will apply to all later
payments in the series until you change your election. You are free to change
your election for any later payment in the series.
III. Payment Paid to You
If you have the payment made to you, it is subject to 20% income tax
withholding. The payment is taxed in the year you receive it unless, within 60
days, you roll it over to an IRA or another plan that accepts rollovers. If you
do not roll it over, special tax rules may apply.
Income Tax Withholding:
Mandatory Withholding. If any portion of the payment to you is an eligible
rollover distribution, the Plan is required by law to withhold 20% of the
amount. This amount is sent to the IRS as income tax withholding. For example,
if your eligible rollover distribution is $10,000, only $8,000 will be paid to
you because the Plan must withhold $2,000 as income tax. However, when you
prepare your income tax return for the year, you will report the full $10,000 as
a payment from the Plan. You will report the $2,000 as tax withheld, and it
will be credited against any income tax you owe for the year.
Voluntary Withholding. If any portion of your payment is not an eligible
rollover distribution but is taxable, the mandatory withholding rules described
above do not apply. In this case, you may elect not to have withholding apply
to that portion. To elect out of withholding, ask the Plan administrator for
the election form and related information.
Sixty-day Rollover Option. If you have an eligible rollover distribution paid
to you, you can still decide to rollover all or part of it to an IRA or another
employer plan that accepts rollovers. If you decide to roll over, YOU MUST MAKE
THE ROLLOVER WITHIN 60 DAYS AFTER YOU RECEIVE THE PAYMENT. The portion of your
payment that is rolled over will not be taxed until you take it out of the IRA
or the employer plan.
You can rollover up to 100% of the eligible rollover distribution, including an
amount equal to the 20% that was withheld. If you choose to roll over 100%, you
must find other money within the 60-day period to contribute to the IRA or the
employer plan to replace the 20% that was withheld. On the other hand, if you
rollover only the 80% that you received, you will be taxed on the 20% that was
withheld.
Example: Your eligible roll over distribution is $ 10,000, and you choose
to have it paid to you. You will receive $8,000, and $2,000 will be sent
to the IRS as income tax withholding. Within 60 days after receiving the
$8,000, you may roll over the entire $10,000 to an IRA or employer plan.
To do this, you roll over the $8,000 you received from the Plan, and you
will have to find $2,000 from other sources (your savings, a loan, etc.).
in this case, the entire $10,000 is not taxed until you take it out of the
IRA or employer plan. If you roll over the entire $10,000 when you file
your income tax return you may get a refund of the $2,000 withheld.
If, on the other hand, you roll over only $8,000, the $2,000 you did not roll
over is taxed in the year it was withheld. When you file your income tax return
you may get a refund of part of the $2,000 withheld. (However, any refund is
likely to be larger if you roll over the entire $10,000.)
Additional 1O% Tax If You Are Under Age 59 1/2. If you receive a payment before
you reach age 59 1/2 and you do not roll it over, then, in addition to the
regular income tax, you may have to pay an extra tax equal to 10% of the taxable
portion of the payment. The additional 10% tax does not apply to your payment
if it is (1) paid to you because you separate from service with your employer
during or after the year you reach age 55, (2) paid because you retire due to
disability, (3) paid to you as equal (or almost equal) payments over your life
or life expectancy (or your and your beneficiary's lives or life expectancies),
or (4) use to pay certain medical expenses. See IRS Form 5329 for more
information on the additional 10% tax.
Special Tax Treatment. If your eligible rollover distribution is not rolled
over it will be taxed in the year you receive it. However, if it qualifies as a
"lump sum distribution," it may be eligible for special tax treatment. A lump
sum distribution is a payment within one year, of your entire balance under the
Plan (and certain other similar plans of the employer) that is payable to you
because you have reached 59 1/2 or have separated from service with your
employer (or, in the case of a self-employed individual, because you have
reached age 59 1/2 or have become disabled) - For a payment to qualify as a lump
sum distribution, you must have been a participant in the Plan for at least 5
years. The special tax treatment for lump sum distributions is described below.
Five-Year Averaging. If you receive a lump sum distribution after you are age
59 1/2, you may be able to make a one-time election to figure the tax on the
payment by using "5-year averaging." Five-year averaging often reduces the tax
you owe because it treats the payment much as if it were paid over 5 years.
Ten-Year Averaging If You Were Born Before January 1, 1936. If you receive a
lump sum distribution and you were born before January 1, 1936, you can make a
one-time election to figure the tax on the payment by using "10-year averaging"
(using 1986 tax rates) instead of 5-year averaging (using current tax rates).
Like 5-year averaging rules, 10-year averaging often reduces the tax you owe.
Capital Gain Treatment If You Were Born Before January 1, 1936. In addition, if
you receive a lump sum distribution and you were born before January 1, 1936,
you may elect to have the part of your payment that is attributable to your pre-
1974 participation in the Plan (if any) taxed as long-term capital gain at a
rate of 20%.
There are other limits on the special tax treatment for lump sum distributions.
For example, you can generally elect this special tax treatment only once in
your lifetime, and the election applies to all lump sum distributions that you
receive in that same year. If you have previously rolled over a payment from
the Plan (or certain other similar plans of the employer), you cannot use this
special tax treatment for later payments from the Plan. If you roll over your
payment to an IRA, you will not be able to use this special tax treatment for
later payments from the IRA. Also, if you roll over only a portion of your
payment to an IRA, this special tax treatment is not available for the rest of
the payment. Additional restrictions are described in IRS Form 4972, which has
more information on lump sum distributions and how you elect the special tax
treatment.
Employer Stock or Securities. There is a special rule for a payment from the
Plan that includes employer stock (or other employer securities). To use this
special rule, 1) the payment must qualify as a lump sum distribution, as
described above (or would qualify except that you do not yet have 5 years of
participation in the Plan), or 2) the employer stock included in the payment
must be attributable to "after-tax" employee contributions, if any. Under this
special rule, you may have the option of not paying tax on the "net
appreciation" of the stock until you sell the stock. Net unrealized
appreciation generally is the increase in the value of the employer stock while
it was held by the Plan. For example, if employer stock was contributed to your
Plan account when the stock was worth $ 1,000 but the stock was worth $1,200
when you received it, you would not have to pay tax on the $200 increase in
value until you later sold the stock.
You may instead elect not to have the special rule apply to the net unrealized
appreciation. In this case, your net unrealized appreciation will be taxed in
the year you receive the stock unless you roll over the stock. The stock
(including any net unrealized appreciation) can be rolled over to an IRA or
another employer plan either in a direct rollover or a rollover that you make
yourself.
If you receive employer stock in a payment that qualifies as a lump sum
distribution, the special tax treatment for lump sum distributions described
above (such as 5-year averaging) also may apply. See IRS Form 4972 for
additional information on these rules.
IV. Surviving Spouses, Alternate Payees, and Other Beneficiaries
In general, the rules summarized above that apply to payments to employees also
apply to payments to surviving spouses of employees and to spouses or former
spouses who are "alternate payees." You are an alternate payee if your interest
in the Plan results from a "qualified domestic relations order," which is an
order issued by a court usually in connection with a divorce or legal
separation. Some of the rules summarized above also apply to a deceased
employee's beneficiary who is not a spouse. However, there are some exceptions
for payments to surviving spouses, alternate payees, and other beneficiaries
that should be mentioned.
If you are a surviving spouse, you may choose to have an eligible rollover
distribution paid in a direct rollover to an IRA or paid to you. If you have
the payment paid to you, you can keep it or roll it over yourself to an IRA but
you cannot roll it over to an employer plan. If you are an alternate payee, you
have the same choices as the employee. Thus, you can have the payment paid as a
direct rollover or paid to you. If you have it paid to you, you can keep it or
roll it over yourself to an IRA or to another employer plan that accepts
rollovers. If you are a beneficiary other than the surviving spouse, you CANNOT
choose a direct rollover, and you CANNOT roll over the payment yourself.
If you are a surviving spouse, an alternate payee, or another beneficiary, your
payment is not subject to the additional 10% tax described in section III above,
even if you are younger than age 59 1/2.
If you are a surviving spouse, an alternate payee, or another beneficiary, you
may be able to use the special tax treatment for lump sum distributions and the
special rule for payments that include employer stock as described in section
III above. If you receive a payment because of the employee's death, you may be
able to treat the payment as a lump sum distribution if the employee met the
appropriate age requirements, whether or not the employee had 5 years of
participation in the Plan.
How to Obtain Additional Information
This notice summarizes only the federal (not state or local) tax rules that
might apply to your payment. The rules described above are complex and contain
many conditions and exceptions that are not included in this notice. Therefore,
you may want to consult with a professional tax advisor BEFORE you take a
payment of your benefits from the Plan. Also, you can find more specific
information on the tax treatment of payments from qualified retirement plans in
IRS Publication 575, Pension and Annuity Income, and IRS Publication 590,
Individual Retirement Arrangements. These publications are available from your
local IRS office or by calling 1-800-TAX-FORMS.
I have read and understand the above Special Tax Notice pursuant to the
Unemployment Compensation Amendments of 1992 and hereby elect the following:
_______ Direct Rollover _______ Lump sum payment
Received by: ______________________________ ____________________
(Participant) (Date)
CRP1666
EX-99.B14-24-CRP1667
Waddell WAIVER OF JOINT AND SURVIVOR ANNUITY
& Reed
FINANCIAL _________________________________________
SERVICES Plan Name
INSTRUCTIONS: Part A or Part B must be completed. Part C must also be completed
if you are not married.
PART A: Note: This portion should be signed (and your spouse's
signature witnessed) if you and your spouse wish to
waive the Joint and Survivor Annuity. If you are not
married and do not wish to receive a life annuity you
must sign this waiver and the Statement of Unmarried
Participants below.
In accordance with Federal Law, I elect NOT to receive my Nonforfeitable Accrued
Benefit in the form of a Joint and Survivor Annuity (Life Annuity if unmarried).
The Plan Administrator has furnished me an explanation of the terms of the Joint
and Survivor Annuity, my right to make this waiver election, the time period
during which I may make this waiver election, and the financial effect of my
election not to receive my benefits in the Joint and Survivor Annuity form. I
understand I may revoke this election at any time during the election period. I
further understand by making this election, if I have not designated a method of
payment, the Plan Administrator will determine the form in which the Trustee
will distribute my Nonforfeitable Accrued Benefit.
I have executed this waiver election this _____ day of __________________,
19____.
_________________________________________
Participant's Signature
PART B: Note: This portion should be signed if you DO NOT WANT TO
WAIVE the Joint and Survivor Annuity of Life Annuity.
ACKNOWLEDGMENT OF RECEIPT
In accordance with Federal Law, I understand that my Nonforfeitable Accrued
Benefit is to be distributed in the form of a Joint and Survivor Annuity (Life
Annuity if unmarried). The Plan Administrator has furnished me an explanation
of the terms of the Joint and Survivor Annuity, and the right of my spouse and I
to make a waiver election, the time period during which I may make the waiver
election, and the financial effect of my election to have my benefits paid in
the Joint and Survivor Annuity Form.
Dated this ________day of _________________, 19____.
______________________________________________
Participant's Signature
PART C: Note: If you are not married, complete the Statement of
Unmarried Participant shown below and completed Part A
or Part B above.
STATEMENT OF UNMARRIED PARTICIPANT
( ) I am not married
____________________________ _______________________
Participant's Signature Date
Marital status verified by:
____________________________ ________________________
Plan Administrator Date
RETURN TO YOUR PLAN SPONSOR
CRP1667
EX-99.B14-25-CRP1668
Waddell SPOUSAL CONSENT ON EARLY DISTRIBUTION
& Reed
FINANCIAL ___________________________________________
SERVICES Plan Name
I, ________________________, the spouse of ________________, hereby consent to
the distribution of my spouse's vested account balance in the plan.
I have executed this consent this ______ day of ________________, 19___.
________________________________________________________________________
Signature of Participant Spouse
In witness whereof I have signed my name and affixed my official notarial seal
this _______ day of _________________, 19____.
_____________________________________
Notary Public
My commission expires: _________________
UNMARRIED STATUS
I hereby certify that I do not have a living spouse. I understand it is
necessary to prove this to the plan administrator prior to receiving my
distribution from the plan.
_______________________________
Participant's Signature
________________________
Date
RETURN TO YOUR PLAN SPONSOR
CPR1668
EX-99.B14-26-CRP1669
Waddell
& Reed
FINANCIAL CONSENT TO LUMP SUM DISTRIBUTION
SERVICES EXCEEDING $3,500.00
Plan Name _________________________________________________________
Participant's Name: __________________________________________________
INSTRUCTIONS: Part A or Part B must be completed.
PART A: I understand that the amount to which I am entitled from the Plan
exceeds $3,500.00. I further understand that I (and my spouse, if I am married)
must consent to the distribution being made in order to receive it, and that my
spouse's consent must be before a Notary Public or a Plan Representative.
I hereby consent to the distribution of an amount greater than $3,500.00.
Attached to this form is my Election to Waive the Joint and Survivor Annuity,
and my spouse's consent to this election.
_______________________ ____________________
Participant's Signature Date
SPOUSE'S CONSENT TO DISTRIBUTION
I hereby consent to the distribution of an amount greater than $3,500.00 to my
spouse.
________________________ ____________________
Participant's Signature Date
STATE OF ____________________)
COUNTY _____________________)
Subscribed and sworn to before me, a Notary Public in and for said County and
State, this ___________________ day of _____________________, 19___.
___________________________ My Commission Expires: _____________
Notary Public
OR
The foregoing consent was signed before me this _____ day of __________________,
19___.
__________________________________
Plan Representative and Title
PART B: STATEMENT OF UNMARRIED PARTICIPANT
( ) I am not married
_________________________ _________________
Participant's Signature Date
Marital status verified by:
_________________________ _________________
Plan Administrator Date
RETURN TO YOUR PLAN SPONSORCRP1669
WADDELL & REED FUNDS, INC.
Class Y Shares
The formula used to calculate the average annual total return is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
For the period from December 27, 1995 through March 31, 1997
Total Return Fund
P = $1,000
n = 1.260
ERV = $1,277.13, and
T = 21.42%
Growth Fund
P = $1,000
n = 1.260
ERV = $944.82, and
T = -4.40%
Limited-Term Bond Fund
P = $1,000
n = 1.260
ERV = $1,050.13, and
T = 3.96%
Municipal Bond Fund
P = $1,000
n = 1.260
ERV = $1,048.70, and
T = 3.85%
International Growth Fund
P = $1,000
n = 1.260
ERV = $1,273.19, and
T = 21.12%
Asset Strategy Fund
P = $1,000
n = 1.260
ERV = $1,018.52, and
T = 1.47%
For the period from April 1, 1996 through March 31, 1997
Total Return Fund
P = $1,000
n = 1
ERV = $1,194.48, and
T = 19.45%
Growth Fund
P = $1,000
n = 1
ERV = $907.54, and
T = -9.25%
Limited-Term Bond Fund
P = $1,000
n = 1
ERV = $1,055.25, and
T = 5.53%
Municipal Bond Fund
P = $1,000
n = 1
ERV = $1,067.95, and
T = 6.80%
International Growth Fund
P = $1,000
n = 1
ERV = $1,241.19, and
T = 24.12%
Asset Strategy Fund
P = $1,000
n = 1
ERV = $1,021.03, and
T = 2.10%
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 250,972,615
<INVESTMENTS-AT-VALUE> 319,262,141
<RECEIVABLES> 1,816,703
<ASSETS-OTHER> 3,715
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 321,082,559
<PAYABLE-FOR-SECURITIES> 684,931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,440,452
<TOTAL-LIABILITIES> 3,125,383
<SENIOR-EQUITY> 174,931
<PAID-IN-CAPITAL-COMMON> 246,814,790
<SHARES-COMMON-STOCK> 17,493,092
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,677,929
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,289,526
<NET-ASSETS> 317,957,176
<DIVIDEND-INCOME> 3,646,222
<INTEREST-INCOME> 1,123,014
<OTHER-INCOME> 0
<EXPENSES-NET> (5,209,371)
<NET-INVESTMENT-INCOME> (440,135)
<REALIZED-GAINS-CURRENT> 3,484,953
<APPREC-INCREASE-CURRENT> 26,027,620
<NET-CHANGE-FROM-OPS> 29,072,438
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,707,605)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,832,595
<NUMBER-OF-SHARES-REDEEMED> (2,182,958)
<SHARES-REINVESTED> 95,510
<NET-CHANGE-IN-ASSETS> 109,637,320
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,886,789
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,209,371
<AVERAGE-NET-ASSETS> 266,544,766
<PER-SHARE-NAV-BEGIN> 16.34
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 1.97
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.11)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.18
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 193,593,713
<INVESTMENTS-AT-VALUE> 196,036,250
<RECEIVABLES> 5,029,135
<ASSETS-OTHER> 3,721
<OTHER-ITEMS-ASSETS> 5,283
<TOTAL-ASSETS> 201,074,389
<PAYABLE-FOR-SECURITIES> 1,120,728
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,601,951
<TOTAL-LIABILITIES> 2,722,679
<SENIOR-EQUITY> 109,224
<PAID-IN-CAPITAL-COMMON> 185,400,277
<SHARES-COMMON-STOCK> 10,922,443
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,399,672
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,442,537
<NET-ASSETS> 198,351,710
<DIVIDEND-INCOME> 171,606
<INTEREST-INCOME> 4,182,041
<OTHER-INCOME> 0
<EXPENSES-NET> (4,989,630)
<NET-INVESTMENT-INCOME> (635,983)
<REALIZED-GAINS-CURRENT> 13,839,883
<APPREC-INCREASE-CURRENT> (39,982,914)
<NET-CHANGE-FROM-OPS> (26,779,014)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6,956,570)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,647,036
<NUMBER-OF-SHARES-REDEEMED> (2,712,593)
<SHARES-REINVESTED> 341,945
<NET-CHANGE-IN-ASSETS> (4,206,175)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,904,258
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,989,630
<AVERAGE-NET-ASSETS> 234,914,001
<PER-SHARE-NAV-BEGIN> 21
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> (2.18)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.60)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.16
<EXPENSE-RATIO> 2.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> LIMITED-TERM BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 18,084,258
<INVESTMENTS-AT-VALUE> 17,767,389
<RECEIVABLES> 388,533
<ASSETS-OTHER> 3,339
<OTHER-ITEMS-ASSETS> 320
<TOTAL-ASSETS> 18,159,581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 284,542
<TOTAL-LIABILITIES> 284,542
<SENIOR-EQUITY> 18,053
<PAID-IN-CAPITAL-COMMON> 18,262,177
<SHARES-COMMON-STOCK> 1,805,335
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (88,322)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (316,869)
<NET-ASSETS> 17,875,039
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,254,083
<OTHER-INCOME> 0
<EXPENSES-NET> (401,535)
<NET-INVESTMENT-INCOME> 852,548
<REALIZED-GAINS-CURRENT> (88,346)
<APPREC-INCREASE-CURRENT> (110,492)
<NET-CHANGE-FROM-OPS> 653,710
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (852,548)
<DISTRIBUTIONS-OF-GAINS> (15,813)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 542,972
<NUMBER-OF-SHARES-REDEEMED> (1,190,546)
<SHARES-REINVESTED> 84,370
<NET-CHANGE-IN-ASSETS> (5,807,491)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108,389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 401,535
<AVERAGE-NET-ASSETS> 19,381,246
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> (0.09)
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.9
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 35,806,635
<INVESTMENTS-AT-VALUE> 36,319,575
<RECEIVABLES> 671,033
<ASSETS-OTHER> 3,359
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,993,967
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 375,353
<TOTAL-LIABILITIES> 375,353
<SENIOR-EQUITY> 34,111
<PAID-IN-CAPITAL-COMMON> 36,320,553
<SHARES-COMMON-STOCK> 3,411,071
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (248,990)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 512,940
<NET-ASSETS> 36,618,614
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,188,413
<OTHER-INCOME> 0
<EXPENSES-NET> (689,403)
<NET-INVESTMENT-INCOME> 1,499,010
<REALIZED-GAINS-CURRENT> 308,152
<APPREC-INCREASE-CURRENT> 23,298
<NET-CHANGE-FROM-OPS> 1,830,460
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,499,010)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 690,053
<NUMBER-OF-SHARES-REDEEMED> (587,793)
<SHARES-REINVESTED> 123,336
<NET-CHANGE-IN-ASSETS> 2,748,763
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 200,636
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 689,403
<AVERAGE-NET-ASSETS> 35,884,523
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.11
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> 1.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> INTERNATIONAL GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 48,775,835
<INVESTMENTS-AT-VALUE> 53,845,344
<RECEIVABLES> 1,384,661
<ASSETS-OTHER> 3,335
<OTHER-ITEMS-ASSETS> 2,997
<TOTAL-ASSETS> 55,236,337
<PAYABLE-FOR-SECURITIES> 4,372,301
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164,689
<TOTAL-LIABILITIES> 4,536,990
<SENIOR-EQUITY> 40,886
<PAID-IN-CAPITAL-COMMON> 43,052,909
<SHARES-COMMON-STOCK> 4,088,575
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,559,619
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,045,933
<NET-ASSETS> 50,699,347
<DIVIDEND-INCOME> 348,846
<INTEREST-INCOME> 258,150
<OTHER-INCOME> 0
<EXPENSES-NET> (771,357)
<NET-INVESTMENT-INCOME> (164,361)
<REALIZED-GAINS-CURRENT> 3,176,354
<APPREC-INCREASE-CURRENT> 4,292,907
<NET-CHANGE-FROM-OPS> 7,304,900
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,640)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,255,819
<NUMBER-OF-SHARES-REDEEMED> (271,021)
<SHARES-REINVESTED> 2,466
<NET-CHANGE-IN-ASSETS> 29,818,341
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 251,914
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 771,357
<AVERAGE-NET-ASSETS> 31,433,467
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.50
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.40
<EXPENSE-RATIO> 2.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000883622
<NAME> WADDELL & REED FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> ASSET STRATEGY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 13,778,178
<INVESTMENTS-AT-VALUE> 13,276,675
<RECEIVABLES> 322,320
<ASSETS-OTHER> 555
<OTHER-ITEMS-ASSETS> 2,517
<TOTAL-ASSETS> 13,602,067
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 88,361
<TOTAL-LIABILITIES> 88,361
<SENIOR-EQUITY> 13,892
<PAID-IN-CAPITAL-COMMON> 14,196,290
<SHARES-COMMON-STOCK> 1,389,190
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 31,035
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (226,008)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (501,503)
<NET-ASSETS> 13,513,706
<DIVIDEND-INCOME> 54,477
<INTEREST-INCOME> 627,008
<OTHER-INCOME> 0
<EXPENSES-NET> (363,178)
<NET-INVESTMENT-INCOME> 318,307
<REALIZED-GAINS-CURRENT> (222,565)
<APPREC-INCREASE-CURRENT> (178,352)
<NET-CHANGE-FROM-OPS> (82,610)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (293,957)
<DISTRIBUTIONS-OF-GAINS> (191,019)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 660,388
<NUMBER-OF-SHARES-REDEEMED> (621,105)
<SHARES-REINVESTED> 47,538
<NET-CHANGE-IN-ASSETS> 291,249
<ACCUMULATED-NII-PRIOR> 4,882
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 116,390
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 363,178
<AVERAGE-NET-ASSETS> 14,418,205
<PER-SHARE-NAV-BEGIN> 10.15
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> (0.14)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
