Preliminary Copy
WADDELL & REED FUNDS, INC. TOTAL RETURN FUND
WADDELL & REED FUNDS, INC. GROWTH FUND
WADDELL & REED FUNDS, INC. MUNICIPAL BOND FUND
WADDELL & REED FUNDS, INC. LIMITED-TERM BOND FUND
WADDELL & REED FUNDS, INC. INTERNATIONAL GROWTH FUND
WADDELL & REED FUNDS, INC. ASSET STRATEGY FUND
6300 Lamar Avenue, P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
July 24, 1997
To Shareholders:
Notice is hereby given that a Special Meeting of the shareholders of each
of the series of shares set forth above (each, a "Fund" and collectively, the
"Funds"), respectively, of Waddell & Reed Funds, Inc. (the "Corporation"), will
be held at 6300 Lamar Avenue, Overland Park, Kansas, on the 24th day of July,
1997, at 10:00 a.m., local time, or any adjournment(s) thereof, for the
following purposes:
1. To elect the Board of Directors of the Corporation;
2. To ratify the selection of Deloitte & Touche LLP as independent
accountants of the Corporation for its current fiscal year;
3. For each Fund: To approve changes to certain of its fundamental
investment policies and restrictions;
4. For Asset Strategy Fund only: To approve a change in its goal;
5. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) thereof.
The Board of Directors of the Corporation has fixed the close of business
on May 7, 1997, as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. You are entitled to
vote at the meeting and any adjournment(s) thereof if you owned shares of any
of the Funds at the close of business on May 7, 1997. If you attend the
meeting, you may vote your shares in person. If you do not expect to attend
the meeting, please complete, date, sign and properly return the enclosed proxy
card(s) in the enclosed postage-paid envelope. If you do not sign and return
your proxy card(s), the Fund(s) may incur the additional expense of subsequent
mailings in order to have a sufficient number of cards signed and returned.
Retain this Notice and Proxy Statement. This is a joint Notice and Proxy
Statement for the above-named Funds. The shares you own in a particular Fund
may only be voted with respect to that Fund. If you own shares in more than
one of the Funds listed, please vote with respect to each Fund on the proxy
card provided with respect to that Fund. Please sign, date and return any and
all proxy cards that are mailed to you.
May __, 1997 By Order of the Board of Directors
Sharon K. Pappas, Secretary
<PAGE>
WADDELL & REED FUNDS, INC. TOTAL RETURN FUND
WADDELL & REED FUNDS, INC. GROWTH FUND
WADDELL & REED FUNDS, INC. MUNICIPAL BOND FUND
WADDELL & REED FUNDS, INC. LIMITED-TERM BOND FUND
WADDELL & REED FUNDS, INC. INTERNATIONAL GROWTH FUND
WADDELL & REED FUNDS, INC. ASSET STRATEGY FUND
6300 Lamar Avenue, P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROXY STATEMENT
INTRODUCTION
This document is a proxy statement with respect to Waddell & Reed Funds,
Inc. (the "Corporation") furnished in connection with the solicitation of
proxies by the Corporation's Board of Directors to be used at the Corporation's
special meeting of shareholders ("Meeting") or any adjournment(s) thereof. The
Meeting will be held on July 24, 1997, 10:00 a.m. local time, at 6300 Lamar
Avenue, Overland Park, Kansas, for the purposes set forth in the attached
Notice of the Meeting. This Proxy Statement is being first mailed to
shareholders on or about May __, 1997.
The Corporation has six series of shares outstanding, each of which
represents a separate investment portfolio, as follows: Total Return Fund,
Growth Fund, Limited-Term Bond Fund, Municipal Bond Fund, International Growth
Fund and Asset Strategy Fund. (The series listed above are referred to in this
Proxy Statement, collectively, as the "Funds" and individually, as a "Fund.")
The name of each Fund is set forth below, along with the proposals to be
voted on by the shareholders of that Fund.
Proposals Applicable
Fund Name to Fund
Waddell & Reed Funds, Inc.
Total Return Fund 1, 2, 3
Growth Fund 1, 2, 3
Municipal Bond Fund 1, 2, 3
Limited-Term Bond Fund 1, 2, 3
International Growth Fund 1, 2, 3
Asset Strategy Fund 1, 2, 3, 4
One-third of the shares outstanding on the record date, May 7, 1997
("Record Date"), represented in person or by proxy, of the Fund must be present
for the transaction of business at the Fund's Meeting. In the event that a
quorum is not present, or if a quorum is present at the Meeting but sufficient
votes to approve any one of the Proposals are not received, the persons named
as proxies (or their substitutes) may propose one or more adjournments of the
Meeting to permit the further solicitation of proxies. Any adjournment will
require the affirmative vote of a majority of those shares represented at the
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote FOR such Proposal in favor of an
adjournment and will vote those proxies required to be voted AGAINST such
Proposal against such adjournment. A shareholder vote may be taken on one or
more of the Proposals described in this Proxy Statement prior to any such
adjournment if sufficient votes have been received and it is otherwise
appropriate.
The individuals named as proxies (or their substitutes) in the enclosed
proxy card (or cards if you have multiple accounts) will vote in accordance
with your directions as indicated thereon if your proxy is received properly
executed. You may direct the proxy holders to vote your Fund shares on a
Proposal applicable to that Fund by checking the appropriate box "For" or
"Against," or instruct them not to vote those shares on the Proposal by
checking the "Abstain" box. Alternatively, you may simply sign, date and
return your proxy card(s) with no specific instructions as to the Proposals.
If you properly execute your proxy and give no voting instructions with respect
to a Proposal on which you are entitled to vote, your shares will be voted FOR
the Proposal.
The duly appointed proxies may, in their discretion, vote upon such other
matters as may properly come before the Meeting. Each full share issued and
outstanding on the Record Date, whether Class B or Class Y, is entitled to one
vote, and each fractional share issued and outstanding on the record date is
entitled to a proportionate share of one vote. The Class B and Class Y
shareholders of each Fund vote together with respect to each Proposal that
affects their Fund, except that all Class B and Class Y shareholders of all the
Funds vote together with respect to the election of Directors (Proposal 1) and
the ratification of independent accountants (Proposal 2).
Abstentions and "broker non-votes" (as defined below) are counted for
purposes of determining whether a quorum is present, but do not represent votes
cast with respect to any Proposal. _Broker non-votes_ are shares held by a
broker or nominee for which an executed proxy is received by the Fund, but are
not voted as to one or more Proposals because instructions have not been
received from the beneficial owner or person entitled to vote and the broker or
nominee does not have discretionary voting power.
You may revoke your proxy with respect to a Fund: (a) at any time prior to
its exercise by written notice of its revocation to the Secretary of the Fund
at the above address prior to the Meeting; (b) by the subsequent execution and
return of another proxy prior to the Meeting; or (c) by being present and
voting in person at the Meeting and giving oral notice of revocation to the
Chairman of the Meeting. Attendance at the Meeting will not in and of itself
constitute revocation of your proxy.
Information as to the number of outstanding shares of each Fund, and class
thereof, as of the Record Date, is set forth in Exhibit A. A listing of the
owners of more than 5% of any class of a Fund as of April 30, 1997, is set
forth in Exhibit B. To the knowledge of each Fund's management, the executive
officers and Directors of the Corporation, as a group, owned less than 1% of
the outstanding shares of each Fund as of April 30, 1997.
Copies of each Fund's most recent annual and semi-annual reports have been
sent to shareholders of that Fund on or before the mailing of this Proxy
Statement. Shareholders of any Fund may obtain, free of charge, copies of that
Fund's annual and semi-annual reports by writing to Waddell & Reed, Inc. at
6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, KS 66201-9217 or calling
(800) 366-5465.
THE BOARD OF DIRECTORS UNANIMOUSLY APPROVED THESE PROPOSALS AND
RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF THEM.
PROPOSAL 1: ELECTION OF DIRECTORS
The persons set forth below have been nominated for election as Directors
of the Corporation, and each has consented to his or her nomination and agreed
to serve if elected. Each nominee is currently a Director of the Corporation,
except James M. Concannon and John A. Dillingham, and each present Director
serves pursuant to election by Shareholders, except Ronald K. Richey, who was
elected by the other Directors effective May 1, 1993, Linda Graves and Eleanor
B. Schwartz, each of whom were elected by the other Directors effective July
12, 1995, and William L. Rogers and Frank J. Ross, Jr., each of whom were
elected by the other Directors effective October 16, 1996. If any of the
nominees should not be available for election, the persons named as proxies (or
their substitutes) may vote for other persons in their discretion. Management
has no reason to believe that any nominee will be unavailable for election.
The names of the Corporation's Directors, persons nominated to become
Directors, and executive officers, their respective offices, and principal
occupations during the last five years are set forth below.
Directors and Nominees of the Funds
As of the date of this Proxy Statement, six of the Corporation's Directors
were "interested persons," as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), of Waddell & Reed Investment Management Company, the
investment manager of each Fund ("WRIMCO"), and Waddell & Reed, Inc., each
Fund's principal underwriter ("W&R"). The Directors who are "interested
persons" are indicated as such by an asterisk. Messrs. Morgan, Richey, and
Tucker are interested persons because they are present or former officers,
directors and/or shareholders of Waddell & Reed, Inc. and/or certain of its
affiliates. Mr. Hayes and Ms. Graves are interested persons because of their
ownership of shares of Torchmark Corporation, which indirectly controls WRIMCO
and Waddell & Reed, Inc., and because Ms. Graves is a member of Mr. Richey's
immediate family. Mr. Ross is an interested person because he is a partner in
a law firm which has acted as legal counsel for W&R. Each of the Corporation's
Directors, and nominees for Director, is also a Director of each of the funds
in the Fund Complex, and each of the Corporation's officers listed below is
also an officer of each of the funds in the Fund Complex. For purposes of this
section, the term "Fund Complex" includes the Corporation, with its six series,
each of the seventeen funds in the United Group, which consists of fourteen
corporate entities, and TMK/United Funds, Inc., with eleven portfolios, each of
which is managed by WRIMCO. A table indicating each Director's and nominee's
ownership of Fund shares is attached hereto as Exhibit C.
RONALD K. RICHEY* (age 70) -- Director of the Corporation since May 1,
1993; Chairman of the Board of Directors of the Corporation; 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 W&R. Father of Linda Graves, Director of
the Corporation.
KEITH A. TUCKER* (age 52) -- Director of the Corporation since September
21, 1992. President of the Fund; President, Chief Executive Officer and
Director of Waddell & Reed Financial Services, Inc.; Chairman of the Board of
Directors of WRIMCO, W&R, Waddell & Reed Services Company, Waddell & Reed Asset
Management Company and Torchmark Distributors, Inc., each an affiliate of
Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief Executive
Officer and President of United Investors Management Company; Vice Chairman of
the Board of Directors of Torchmark Corporation; Director of Southwestern Life
Corporation; formerly, partner in Trivest, a private investment concern;
formerly, Director of Atlantis Group, Inc., a diversified company.
HENRY L. BELLMON (age 75) -- Director of the Corporation since September
21, 1992. Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN (age 66) -- Director of the Corporation since September
21, 1992. Advisory Director, The Hand Companies, an actuarial consulting
company; President, Buchanan Ranch Corporation; formerly, Senior Vice President
and Director of Marketing Services, The Meyer Group of Management Consultants;
formerly, Professor and Chairman of Marketing, College of Business, University
of Colorado.
JAMES M. CONCANNON (age 49) -- Dean and Professor of Law, Washburn
University School of Law.
JOHN A. DILLINGHAM (age 58) -- Director and consultant, McDougal
Construction Company; formerly Senior Vice President-Sales and Marketing,
Garney Companies, Inc., a specialty utility contractor.
LINDA GRAVES* (age 43) -- Director of the Corporation since July 12, 1995.
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.
JOHN F. HAYES* (age 77) -- Director of the Corporation since September 21,
1992. Director, Central Bank and Trust; Director, Central Kansas Bankshares;
Director, Central Properties, Inc.; Chairman, Gilliland & Hayes, P.A., a law
firm; formerly, President, Gilliland & Hayes, P.A.
GLENDON E. JOHNSON (age 73) -- Director of the Corporation since September
21, 1992. Director and Chief Executive Officer of John Alden Financial
Corporation and subsidiaries.
WILLIAM T. MORGAN* (age 69) -- Director of the Corporation since September
21, 1992. Retired; formerly, Chairman of the Board of Directors and President
of the Corporation (Mr. Morgan retired as Chairman of the Board of Directors
and President of the Corporation on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and W&R; 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 W&R.
WILLIAM L. ROGERS (age 50) -- Director of the Corporation since October
16, 1996. Principal, Colony Capital, Inc., a real estate-related investment
company; formerly, partner in Trivest, a private investment concern.
FRANK J. ROSS, JR.* (age 44) -- Director of the Corporation since October
16, 1996. Partner, Polsinelli, White, Vardeman & Shalton, a law firm.
ELEANOR B. SCHWARTZ (age 60) -- Director of the Corporation since July 12,
1995. Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City.
FREDERICK VOGEL III (age 61) -- Director of the Corporation since
September 21, 1992. Retired.
PAUL S. WISE (age 76) -- Director of the Corporation since September 21,
1992. Director of Potash Corporation of Saskatchewan, a fertilizer company.
Based on the recommendation of the Corporation's Nominating Committee, at
the meeting of the Board of Directors on April 23, 1997, the Directors of the
Corporation, including Directors who are not "interested persons" of the
Corporation, as defined in the 1940 Act ("Independent Directors"), unanimously
approved the nomination of the foregoing persons to serve or continue to serve
as Directors, as applicable, and directed that the election of these nominees
be submitted to the Corporation's shareholders.
The Board of Directors of the Corporation met six times during each Fund's
fiscal year ended March 31, 1996. Except for Messrs. Rogers and Ross, who were
elected to the Corporation's Board of Directors effective October 16, 1996,
each nominee for re-election as Director attended at least 75% of the meetings
of the Board and each of its committees on which he or she serves during the
Corporation's most recent fiscal year.
The Corporation has an Audit Committee that reviews and evaluates the
audit function, including recommending to the Directors the independent public
accountants to be selected for the Corporation. The Audit Committee currently
consists of Messrs. Buchanan (Chairman) and Vogel, and Ms. Schwartz, each of
whom is an Independent Director, and Messrs. Morgan and Hayes. Each was
elected to the Audit Committee on August 30, 1995. The Corporation's Audit
Committee met four times during the Corporation's most recent fiscal year.
The Corporation also has a Nominating Committee that is responsible for
the selection and nomination of the Independent Directors. The Nominating
Committee currently consists of Messrs. Johnson and Wise, each of whom is an
Independent Director. The Corporation's Nominating Committee met twice during
the Corporation's most recent fiscal year. The Nominating Committee generally
does not consider unsolicited Director nominations recommended by shareholders.
Officers and Directors who are affiliated persons of the Corporation, as
defined in the 1940 Act, receive no salary, fees, or compensation from the
Fund. Each of the Directors, other than Messrs. Richey and Tucker, receives
$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. The fees and reimbursed expenses paid to the Directors are
divided among the Funds, the United Group and TMK/United Funds, Inc.
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
*The officers are paid by WRIMCO or its affiliates. No pension or retirement
benefits have been accrued as a part of Fund expenses.
The Board of Directors of the Corporation has created an honorary position
of Director Emeritus. The Director Emeritus policy provides that an incumbent
Director who has attained the age of 75 and was initially elected as a Director
prior to May 31, 1993, may, or if initially elected as a Director on or after
May 31, 1993, must, resign his or her position as a Director and, unless he or
she elects otherwise, will serve as a Director Emeritus provided that the
Director has served as a Director of the Corporation for at least five years,
which need not have been consecutive. A Director Emeritus receives an annual
fee in an amount equal to the annual retainer he or she was receiving at the
time he or she resigned as a Director; provided that a Director initially
elected to a Board of Directors on or after May 31, 1993, receives such annual
fee for a period of three years commencing upon the date the Director began his
or her service as a Director Emeritus or in an equivalent lump sum. 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. Jay B. Dillingham and Doyle Patterson currently serve as Directors
Emeritus.
If elected, the Directors will hold office without limit in time except
(a) any Director may resign, (b) any Director may be removed by Policyholders
upon an affirmative vote of a majority of all the shares entitled to be cast
for the election of Directors, and (c) in connection with the Director Emeritus
policy described above.
Executive Officers of the Funds
The executive officers of the Corporation, other than those who serve as
Directors, are set forth below. Each executive officer, as such, is an
"interested person" of the Corporation. Each executive officer set forth below
holds the same position with the United Group and TMK/United Funds, Inc.
Robert L. Hechler (age 60) -- Vice President and Principal Financial
Officer of the Corporation since 1992; 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 W&R; Director and Treasurer of Waddell & Reed Asset
Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc.
Henry J. Herrmann (age 54) -- Vice President of the Corporation since
1992; Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of W&R; President, Chief Executive Officer,
Chief Investment Officer and Director of WRIMCO and Waddell & Reed Asset
Management Company; Senior Vice President and Chief Investment Officer of
United Investors Management Company.
Theodore W. Howard (age 54) -- Vice President, Treasurer and Principal
Accounting Officer of the Corporation since 1992; Vice President of Waddell &
Reed Services Company.
Sharon K. Pappas (age 38) -- Vice President and Secretary of the
Corporation since 1992, General Counsel of the Corporation since 1994; Vice
President, Secretary and General Counsel of Waddell & Reed Financial Services,
Inc.; Senior Vice President, Secretary and General Counsel of WRIMCO and W&R;
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 each Fund,
WRIMCO, Waddell & Reed Financial Services, Inc., W&R, Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
Required Vote: The election of Directors of the Corporation requires the
favorable vote of the holders of a plurality of the shares cast in person or by
proxy, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.
PROPOSAL 2: RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE AS THE
CORPORATION'S INDEPENDENT ACCOUNTANTS
Discussion. Deloitte & Touche LLP has been selected by the Board of
Directors, with the approval of the Audit Committee, as the Corporation's
independent public accountants for the current fiscal year. The shareholders
of each Fund are entitled to vote for or against the ratification of the
selection of Deloitte & Touche LLP.
Deloitte & Touche LLP has advised the Corporation that neither it nor any
of its partners has any direct or indirect financial interest or connection
(other than as independent accountants) in or with the Corporation or any of
its affiliates. Deloitte & Touche LLP has been given the opportunity to make a
statement at the Meeting if it so desires. Deloitte & Touche LLP is not
expected to have a representative present at the Meeting but will be available
should any matter arise requiring its presence.
On November 5, 1996, Price Waterhouse LLP, the then independentaccountants
of the Corporation, resigned as the independent accountants of the
Corporation. Price Waterhouse LLP audited the Corporation's financial
statements during the two most recent fiscal years that ended on March 31,
1996, and for the period from April 1, 1996 through November 5, 1996. During
such period, the Corporation did not have any disagreements with Price
Waterhouse LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement if not
resolved to the satisfaction of Price Waterhouse LLP would have caused them to
make reference thereto in its report on the financial statements for such
periods.
Price Waterhouse LLP did not, at any time during the Corporation's two
most recent fiscal years, and any subsequent interim period, advise the
Corporation (i) that internal controls necessary for the Corporation to develop
reliable financial statements did not exist, (ii) that it had received
information that led it to no longer be able to rely on management's
representations that made it unwilling to be associated with the financial
statements prepared by management, (iii) of the need to expand significantly
the scope of its audit or that it had received information that if further
investigated may materially impact the fairness or reliability of a previously
issued or subsequent audit report or the underlying financial statements or
cause it to be unwilling to rely on management's representations or be
associated with the financial statements prepared by management, or (iv) that
it had received information that it concluded materially impacted the fairness
or reliability of a previously issued or subsequent audit report or the
underlying financial statements. Price Waterhouse LLP did not so expand any
such audit or conduct further investigation, and no issues existed which were
not resolved to the accountants' satisfaction prior to resignation.
Required Vote: Approval of this Proposal 2 requires the affirmative vote
of a majority of outstanding securities of the Corporation, provided a quorum
is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3: APPROVAL OF CHANGES TO CERTAIN FUNDAMENTAL INVESTMENT RESTRICTIONS
AND POLICIES OF EACH FUND
Relevant Funds. Changes are proposed for all of the Funds, but some of
the proposed changes apply only to certain Funds. See the individual sub-
proposals below for listings of the Funds to which each specific change
applies.
Reasons for the Proposed Changes. Pursuant to the 1940 Act, each of the
Funds has adopted certain fundamental investment restrictions and policies,
which are set forth in the Fund's prospectus or statement of additional
information, and which may be changed only with shareholder approval.
Restrictions and policies that a Fund has not specifically designated as being
fundamental are considered to be "non-fundamental" or "operating" and may be
changed by the Board of Directors without shareholder approval.
Certain of the fundamental restrictions that the Funds have adopted in the
past reflect business or industry conditions or practices or federal
requirements that are no longer in effect. Other fundamental restrictions
reflect regulatory requirements that remain in effect, but which are not
required to be stated as fundamental, or in some cases even as non-fundamental,
restrictions. Also, in some cases, substantially similar fundamental
restrictions have been phrased in slightly different ways, sometimes resulting
in minor but unintended differences in effect or potentially giving rise to
unintended differences in interpretation. Finally, on October 11, 1996, the
National Securities Markets Improvement Act of 1996 (the "NSMIA") was enacted.
The NSMIA created a national system of regulating mutual funds by preempting
certain state securities or "blue sky" laws that apply to mutual funds.
Therefore, certain of the fundamental restrictions reflect state regulatory
requirements with which the Funds are no longer required to comply.
Accordingly, the Board of Directors of the Corporation has approved
revisions to certain of the Fund's fundamental restrictions in order to
simplify, modernize and standardize certain investment restrictions that are
required to be fundamental, and to eliminate certain fundamental restrictions
that are not legally required. In several instances, if an existing
fundamental restriction is eliminated because it is not required to be
fundamental, the Fund intends to implement a similar restriction as a non-
fundamental, operating policy.
The Board of Directors believes that eliminating disparities among certain
of the Funds' fundamental restrictions will enhance WRIMCO's ability to manage
efficiently and effectively the Funds' assets in changing regulatory and
investment environments and will facilitate monitoring of compliance with
fundamental and non-fundamental investment limitations. In addition, by
reducing those policies that can be changed only by shareholder vote, each Fund
will be able to avoid the costs and delays associated with a shareholder
meeting when making changes to its investment policies that, at a future time,
the Board of Directors may consider desirable. Although the proposed changes
in fundamental restrictions will allow the Funds greater investment flexibility
to respond to future investment opportunities, the Board of Directors does not
anticipate that the changes, individually or in the aggregate, will result at
this time in a material change in the level of investment risk associated with
an investment in any Fund.
With respect to investments in options, futures contracts and other
derivative instruments, the Board of Directors determined that the current
policies for certain Funds unnecessarily restrict these Funds from taking
advantage of potential investment and risk management opportunities and
techniques. The Board of Directors accordingly considered and approved
modifications to certain of the Fund's fundamental restrictions, as well as
elimination of certain other fundamental restrictions, that would provide the
Funds greater flexibility to attempt to enhance income or yield and to attempt
to hedge their investments through the use of options on securities (including
index options), options on foreign currencies, futures contracts for the
purchase or sale of instruments based on financial indices (including interest
rates or an index of U.S. Government or foreign government securities or equity
or debt securities) and futures contracts on foreign currencies or debt
securities (hereinafter "futures contracts"), and options on futures contracts,
forward contracts, swaps and swap-related products, and indexed securities.
Exhibit D attached hereto sets forth a summary of the features of options,
futures contracts, forward contracts, swaps and certain swap-related products,
and indexed securities, and the potential uses and risks of these investments.
For certain Funds, the Board of Directors has determined that the Fund
would benefit from having greater flexibility with respect to purchasing and
selling options, futures contracts and other derivative instruments. The Board
of Directors has concluded that amendment and/or elimination of the Fund's
current fundamental investment restrictions regarding commodities, options, and
other derivative instruments as set forth in sub-proposal 3.2 is in the best
interests of each Fund and its shareholders.
The text and a summary description of each proposed change to the affected
Funds' fundamental restrictions are set forth below. For purposes of the
discussion of each proposed change, the terms "Fund" or "Funds" refer only to
those Funds named as to which the change applies.
Shareholders should refer to Exhibit E to this Proxy Statement for the
text of the existing fundamental restrictions that are proposed to be amended
or eliminated. Shareholders should note, however, that certain of the
fundamental restrictions that are treated separately below currently are
combined within a single existing fundamental restriction.
The text below also describes those operating policies that the Funds
intend to implement in conjunction with the elimination of fundamental
restrictions under this Proposal 3. To the extent that a current fundamental
investment restriction is replaced by a non-fundamental, operating policy, such
operating policy could in the future be changed by the Board of Directors
without approval of the affected shareholders, subject to such disclosure to
existing and prospective investors as may be required by law.
If approved by the shareholders of the affected Fund, the amendment or
elimination of fundamental investment restrictions shall become operative
concurrently with the effectiveness of an amendment to the Fund's registration
statement describing the same. If a Proposal is not approved as to a
particular Fund, the Fund's corresponding current investment restriction will
remain unchanged.
3.1 Elimination of Fundamental Restriction Regarding Repurchase Transactions
Fund to which this change applies: Municipal Bond Fund.
Discussion: Municipal Bond Fund has a fundamental investment restriction
that prohibits it from engaging in repurchase transactions. WRIMCO believes
that the Fund would benefit from having the flexibility to enter into
repurchase agreements, which are commonly used by mutual funds for the short-
term investment of cash. In general, a repurchase agreement is an arrangement
under which the Fund would buy a security and the seller would simultaneously
agree to repurchase the security at a specified time and price that reflects a
market rate of interest. For certain purposes, a repurchase agreement is
viewed as a loan by a fund that is collateralized by the security which is the
subject of the transaction.
If sub-proposal 3.1 is approved by the shareholders of Municipal Bond
Fund, the Fund will eliminate its current restriction prohibiting its use of
repurchase arrangements. The Fund's 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 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. To
reduce the risk of loss if the selling party were to default on its obligation
to repurchase and the value of the underlying security declined, the Fund will
enter into repurchase agreements only with those entities such as the Fund's
custodian bank and recognized securities dealers approved by WRIMCO on the
basis of criteria established by the Board of Directors, and WRIMCO will
monitor the market value of the underlying security during the term of the
agreement.
Repurchase agreements will generate taxable income to the Fund and will
accordingly be subject to the Fund's current limit on taxable income.
Repurchase agreements not terminable within seven days will be considered
illiquid and subject to the Fund's limits on illiquid investments.
3.2 Modification of Fundamental Restriction Regarding Options, Commodities,
Forward Contracts and/or Futures Contracts
Funds to which this change applies: All Funds.
Discussion: Approval of this sub-proposal 3.2 by the shareholders of a
Fund would modify that Fund's fundamental investment restrictions regarding
investments in physical commodities, commodities and commodity contracts.
If this sub-proposal 3.2 is adopted by the shareholders of a Fund, that
Fund intends to implement a non-fundamental, operating policy, which could be
changed by the Board of Directors of the Fund without the approval of
shareholders of the Fund, regarding investment in derivative instruments for
that Fund, as described below.
The primary purpose of this sub-proposal 3.2 is to authorize each Fund to
engage in certain transactions in options, futures contracts, and other
derivative instruments, which will provide the Fund greater flexibility in the
management of its investments. WRIMCO believes that it is desirable for the
Funds to be able to engage in options, futures contracts and other derivative
instruments in order to enhance income or yield to hedge portfolio positions,
as may be permitted under applicable law and regulations and in a manner that
is consistent with that Fund's goal and investment policies.
Proposed Fundamental Investment Restriction and New Non-Fundamental,
Operating Policy: The fundamental investment restriction for each Fund (other
than Asset Strategy Fund) governing options, commodities, futures contracts and
other derivative instruments is proposed to be revised to provide as follows:
The Fund may not purchase or sell physical commodities; however, this
policy shall not prevent the Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments.
The fundamental investment restriction for Asset Strategy Fund governing
commodities is proposed to be revised to provide as follows:
The Fund may not purchase or sell physical commodities, except that the
Fund may purchase and sell bullion for temporary, defensive purposes;
however, this policy shall not prevent the Fund from purchasing and
selling foreign currency, futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments.
If the shareholders of a Fund approve the modification of its fundamental
restriction as proposed, that Fund intends to implement a non-fundamental,
operating policy that provides that:
Generally, the Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options,
forward contracts, swaps, caps, collars, floors and indexed securities).
However, the 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.
3.3 Modification of Fundamental Restriction Regarding Margin Purchases of
Securities
Funds to which this change applies: All Funds.
Discussion: Margin purchases involve the purchase of securities with
money borrowed from a broker. "Margin" is the cash or eligible securities that
the borrower places with the broker as collateral to secure the loan. Pursuant
to its current fundamental restriction(s), each Fund is prohibited from
purchasing securities on margin. With some exceptions, mutual funds are
prohibited from entering into most types of margin purchases by applicable
rules and policies adopted by the Securities and Exchange Commission ("SEC").
If this sub-proposal 3.3 is approved by the shareholders of a Fund, the Fund
intends to implement a revised fundamental investment restriction (set forth
below) that permits the Fund to purchase securities on margin under certain
circumstances and makes clear that short-term credits necessary for the
clearance of transactions and margin payments and other deposits make in
connection with options, futures contracts, forward contracts, swaps and other
derivative instruments are not considered purchasing securities on margin.
Proposed Fundamental Investment Restriction: Each Fund's fundamental
investment restriction is proposed to be revised to prohibit margin purchases
except under conditions permitted by applicable SEC rules and would clarify
that the Fund may make margin payments in connection with options, futures
contracts and other financial instruments. The proposed fundamental investment
restriction would provide that each Fund may not:
Purchase securities on margin, except that the Fund may obtain such short-
term credits as are necessary for the clearance of transactions and that
the Fund may make margin payments in connection with futures contracts,
options, forward contracts, swaps, caps, collars, floors and other
financial instruments.
3.4 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Funds to which this change applies: All Funds.
Discussion: In a short sale, an investor sells a borrowed security and
has a corresponding obligation to the lender to return the identical security.
In an investment technique known as a short sale "against the box," an investor
sells securities short while owning the same securities in the same amount, or
having the right to obtain equivalent securities. The investor could have the
right to obtain equivalent securities, for example, through its ownership of
warrants, options or convertible bonds.
The fundamental restriction, as it is proposed to be modified, would
permit the Fund to engage in short sales of securities against the box. In
addition, the revised fundamental restriction would clarify that options,
futures contracts, swaps, forward contracts and other financial instruments are
not considered short sales.
Proposed Fundamental Investment Restriction: Each Fund's fundamental
investment restriction on short selling is proposed to be revised to provide
that a Fund may not:
Sell securities short (unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short);
however, this policy does not prevent the Fund from entering into short
positions in foreign currency, futures contracts, options, forward
contracts, swaps, caps, collars, floors and other financial instruments.
3.5 Elimination of Fundamental Restriction Regarding Investment in Warrants
and Rights
Funds to which this change applies: Growth Fund, International Growth
Fund, Limited-Term Bond Fund and Total Return Fund.
Discussion: If this sub-proposal 3.5 is approved by the shareholders of a
Fund, that Fund will eliminate its current fundamental restriction regarding
investment in warrants and rights. Each Fund will then have the ability to
invest in warrants and rights without a percentage limitation. Each Fund
intends, however, to operate in accordance with the fundamental restriction and
operating policy as proposed in sub-proposal 3.2 above.
3.6 Elimination of Fundamental Restrictions Regarding Arbitrage Transactions
Funds to which this change applies: All Funds (except Asset Strategy
Fund).
Discussion: If this sub-proposal 3.6 is approved by the shareholders of a
Fund, that Fund will eliminate its current fundamental restriction that
provides that the Fund may not engage in arbitrage transactions. The Fund
intends to operate in accordance with the proposed fundamental restriction and
new non-fundamental, operating policy as proposed in sub-proposal 3.2 above.
3.7 Elimination of Fundamental Restriction Regarding Investments in Issuers
Whose Securities are Owned by Certain Persons
Funds to which this change applies: All Funds.
Discussion: Each Fund currently has a fundamental investment restriction
that prohibits it from purchasing or holding the securities of an issuer if the
officers and directors of the Fund and WRIMCO who beneficially own more than
1/2 of 1% of the securities of that issuer together own beneficially more than
5% of the securities of that issuer. This restriction was originally adopted
to address state securities law requirements in connection with the
registration of Fund shares for sale in that state. Since the effectiveness of
NSMIA, these state restrictions no longer apply.
WRIMCO believes that this fundamental investment restriction should be
eliminated. Although this restriction has not precluded Fund investments in
the past, elimination of the restriction will potentially increase WRIMCO's
flexibility when selecting investments for a Fund in the future. The ability
of a Fund to invest in companies in which its Directors and officers, or its
affiliates and their directors and officers, hold interests would continue to
be restricted by the 1940 Act, whether or not the current fundamental
investment restriction is eliminated.
3.8 Modification of Fundamental Policy Regarding Loans
Funds to which this change applies: All Funds.
Discussion: Each of the Funds currently has a fundamental investment
restriction that, in general, prohibits the Fund from making loans. For the
Funds other than Asset Strategy Fund, the restriction expressly excludes "debt
securities that have been sold to the public," as well as "other obligations
customarily acquired by institutional investors" from the prohibition. For
Asset Strategy Fund, this exception applies to the purchase of a portion of an
issue of "debt securities."
To eliminate any ambiguity or potential disparity in interpretation of the
scope of these exceptions, each Fund's fundamental restriction regarding its
ability to make loans is proposed to be modified to make clear that the Fund
may buy "debt securities and other obligations consistent with its goal and its
other investment policies and restrictions."
Required Vote. Approval of each of the numbered changes contemplated by
Proposal 3 with respect to a Fund requires the affirmative vote of a "majority
of the outstanding voting securities" of that Fund, which for this purpose
means the affirmative vote of the lesser of (1) 67% or more of the shares of
the Fund present at the Meeting or represented by proxy if more than 50% of the
outstanding shares of the Fund are so present or represented or (2) more than
50% of the outstanding shares of the Fund.
If one or more of the numbered changes contemplated by Proposal 3 is not
approved by shareholders of that Fund, the related existing fundamental
restriction(s) of the Fund will continue in effect for that Fund, but
disapproval of all or part of Proposal 3 by the shareholders of one Fund will
not affect any approvals of Proposal 3 that are obtained with respect to any
other Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
PROPOSAL 4: APPROVAL OF CHANGE TO
GOAL OF ASSET STRATEGY FUND
Relevant Fund: Asset Strategy Fund.
Discussion: Proposal 4 is to approve the recommendation of WRIMCO and the
Board of Directors to change Asset Strategy Fund's goal from seeking "high
total return with reduced risk over the long term" to "high total return over
the long term."
Under the Fund's current investment policy, which is non-fundamental and
by which the Fund seeks to achieve its goal, the Fund's assets are allocated
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.
WRIMCO has the ability to allocate the Fund's assets among these classes
within specified ranges. The 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. Under normal circumstances, a
single reallocation will not involve more than 10% of the Fund's total assets.
The range and approximate percentage of the mix for each asset class are shown
below.
Mix Range
--------- ------
Stock class 10-60%
40%
Bond class 20-60%
40%
Short-term class 0-70%
20%
WRIMCO believes that it is desirable to modify the specified range and mix
for each asset class and that the Fund's goal, as it is proposed to be
modified, would be more consistent with the desired range and mix than the
current goal. In particular, if this Proposal 4 is approved by the
shareholders of Asset Strategy, the Fund intends to (i) eliminate the operating
policy regarding the 10% reallocation, and (ii) revise the specified ranges and
mix as follows:
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 the 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.
The proposed change to the Fund's goal does not reflect any current or
contemplated change to any other investment policies of the Fund other than
those described above, and it is not intended to reflect any change in the
level of risk associated with an investment in the Fund.
Required Vote: Approval of this Proposal 4 requires the affirmative vote
of a "majority of the outstanding voting securities" of the Fund, which for
this purpose means the affirmative vote of the lesser of (1) 67% or more of the
shares of the Fund present at the meeting or represented by proxy if more than
50% of the outstanding shares of the Fund are so present or represented or (2)
more than 50% of the outstanding shares of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR PROPOSAL 4.
ADDITIONAL INFORMATION
The solicitation of proxies, the cost of which will be borne by the Funds,
will be made primarily by mail, telephone or oral communications by
representatives of each Fund, regular employees and sales representatives of
W&R, W&R's affiliates, certain broker-dealers (who may be specifically
compensated for such services), or by representatives of Management Information
Services Corp., professional proxy solicitors, retained by the Funds who will
be paid the following approximate fees for soliciting services set forth below.
Each Fund will pay this firm for its share of the out-of-pocket expenses for
doing so. Each Fund will pay a portion of the costs of the Meeting, including
the costs of solicitation, allocated on the basis of the number of shareholder
accounts of each Fund.
Soliciting Fees
and Expenses
Fund (Approximate)
Total Return Fund
Growth Fund
Limited-Term Bond Fund
Municipal Bond Fund
International Growth Fund
Asset Strategy Fund
RECEIPT OF SHAREHOLDER PROPOSALS
As a general matter, the Corporation does not hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals to be
considered at a special meeting of the Corporation's shareholders should send
such proposals to the Corporation at 6300 Lamar Avenue, P.O. Box 29217, Shawnee
Mission, Kansas 66201-9217.
OTHER BUSINESS
The Corporation knows of no other business to be presented at the Meeting
other than the matters set forth in this Proxy Statement. If any other matter
or matters are properly presented for action at the Meeting, the proxy holders
will vote the shares which the proxy cards entitle them to in accordance with
their judgment on such matter or matters. By signing and returning your proxy
card, you give the proxy holders discretionary authority as to any such matter
or matters.
May __, 1997 By Order of the Board of Directors
Sharon K. Pappas, Secretary
<PAGE>
INDEX TO EXHIBITS TO PROXY STATEMENT
Exhibit A--Number of Outstanding Shares of Each Fund...................A-1
Exhibit B--Beneficial Ownership of Greater than 5% of Fund Shares......B-1
Exhibit C--Fund Ownership of Nominees and Current Board Members........C-1
Exhibit D--Summary of Futures Contracts, Options, Forward..............D-1
Contracts, Swaps, Caps, Collars, Floors and
Indexed Securities
Exhibit E--Existing Fundamental Restrictions Proposed..................E-1
to Be Modified or Eliminated
<PAGE>
EXHIBIT A
NUMBER OF OUTSTANDING SHARES OF EACH FUND
Shares Outstanding
as of
Fund Record Date
Total Return Fund
Class B
Class Y
Growth Fund
Class B
Class Y
Limited-Term Bond Fund
Class B
Class Y
Municipal Bond Fund
Class B
Class Y
International Growth Fund
Class B
Class Y
Asset Strategy Fund
Class B
Class Y
<PAGE>
EXHIBIT B
BENEFICIAL OWNERSHIP OF GREATER THAN 5% OF ANY CLASS OF FUND SHARES
Number and Percentage
of Shares Beneficially Owned
Name and Address Fund and Class Thereof as of April 30, 1997
Waddell & Reed, Inc.
6300 Lamar
P. O. Box 29217 Municipal Bond Fund
Shawnee Mission, KS Class Y
66201-9217
<PAGE>
EXHIBIT C
FUND OWNERSHIP OF NOMINEES AND CURRENT BOARD MEMBERS
No. of Shares
Held as of
Name of Nominee Fund April 30, 19971
Henry L. Bellmon
Dodds I. Buchanan
James M. Concannon
John A. Dillingham
Linda Graves
John F. Hayes
Glendon E. Johnson
William T. Morgan
Ronald K. Richey
William L. Rogers
Frank J. Ross, Jr.
Eleanor B. Schwartz
Keith A. Tucker
Frederick Vogel III
Paul S. Wise
1 Unless otherwise stated, as of the date indicated, each Director had sole
voting and investment power of shares owned.
<PAGE>
EXHIBIT D
SUMMARY OF FUTURES CONTRACTS, OPTIONS, FORWARD CONTRACTS, SWAPS, CAPS, COLLARS,
FLOORS AND INDEXED SECURITIES
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 the 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. U.S. futures contracts are traded on exchanges that have been
designated "contract markets" by the Commodity Futures Trading Commission
("CFTC") and must be executed through a futures commission merchant ("FCM"), or
brokerage firm, which is a member of the relevant contract market. Through
their clearing corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
Options on Futures Contracts
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 has written a call, it assumes a short futures position. If a Fund has
written a put, it assumes a long futures position. When a 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).
Options on Securities, Currencies and Indices
A put option gives the holder the right, upon payment of a premium, to
deliver a specified amount of a security or currency to the writer of the
option on or before a fixed date at a predetermined price. A call option gives
the holder the right, upon payment of a premium, to call upon the writer to
deliver a specified amount of a security or currency on or before a fixed date
at a predetermined price. 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.
Forward Contracts
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 contract agreed upon by the parties, at a
price set at the time of the forward contract. These forward contracts are
traded directly between currency traders (usually large commercial banks) and
their customers.
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 a 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.
Indexed Securities
Indexed securities are securities whose prices are indexed to the prices
of other securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators. 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.
Special Investments Considerations and Risks
The use of options, futures contracts, options on futures contracts,
forward currency contracts, swaps, caps, collars and floors, and the investment
in indexed securities, involve special risks, including (i) possible imperfect
or no correlation between price movements of the portfolio investments (held or
intended to be purchased) involved in the transaction and price movements of
the instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii) the
need for additional portfolio management skills and techniques, (iv) losses due
to unanticipated market price movements, (v) the fact that, while such
strategies can reduce the risk of loss, they can also reduce the opportunity
for gain, or even result in losses, by offsetting favorable price movements in
investments involved in the transaction, (vi) incorrect forecasts by WRIMCO
concerning interest or currency exchange rates or direction of price
fluctuations of the investment involved in the transaction, which may result in
the strategy being ineffective, (vii) loss of premiums paid by the Fund on
options it purchases, and (viii) the possible inability of the 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 the Fund to sell a portfolio security at
a disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with such transactions and the possible
inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the 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 the Fund's portfolio of investments and may use these
instruments to adjust the return characteristics of the Fund's portfolio of
investments. The use of derivative instruments for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with the 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 the 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 the
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, foreign 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 foreign exchange rate
movements or stock market movements or the time span within which the movements
take place.
Options and futures contracts may increase portfolio turnover rates, which
results in correspondingly greater commission expenses and transactions costs
and may result in certain tax consequences.
<PAGE>
EXHIBIT E
Existing Investment Restrictions Proposed to Be Modified or
Eliminated
(i) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not sell securities short, buy
securities on margin or engage in arbitrage transactions; however,
each of these Funds may make margin deposits in connection with its
use of any financial instrument permitted by its policies. Also, as
applicable, each of these Funds may enter into escrow and collateral
arrangements in connection with options, futures contracts and other
financial instruments. Asset Strategy Fund may not sell securities
short, provided that transactions in futures contracts, options and
other financial instruments are not deemed to constitute short sales.
Asset Strategy Fund may not purchase securities on margin, except that
this Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that this Fund may make
initial and variation margin payments in connection with transactions
in futures contracts, options and other financial instruments.
(ii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not purchase warrants, except:
Growth Fund may invest not more than 5% of its assets (at the time of
investment) in warrants (other than those that have been acquired in
units or attached to other securities), and of such 5%, no more than
2% of its assets (at the time of investment) may be invested in
warrants that are not listed on the NYSE or the American Stock
Exchange; and International Growth Fund may purchase warrants or
rights to purchase securities ("rights") provided that the Fund will
not purchase warrants or rights if as a result of such purchase more
than 5% of its total assets would consist of warrants, rights or a
combination thereof, not including warrants or rights acquired in
units or attached to other securities.
(iii) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not buy or sell commodities or
commodity contracts except to the extent that instruments in which
these Funds may invest for hedging, income enhancing or other purposes
as such purposes may be permitted by the CFTC and the Fund's policies,
are considered to be commodities or commodity contracts. Asset
Strategy Fund may not purchase or sell physical commodities unless
acquired as a result of ownership of securities (but this shall not
prevent this Fund from purchasing and selling currencies, futures
contracts, options, forward currency contracts or other financial
instruments).
(iv) No Fund may buy or continue to hold securities of an issuer if the
directors and officers of the Corporation and of WRIMCO (each owning
beneficially 0.5% of the securities of such issuer) own in the
aggregate more than 5% of that issuer's securities.
(v) Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund may not lend money or other assets,
other than through certain limited types of loans; however, subject to
the restrictions stated in this SAI and in the Prospectus regarding the
types of securities each of these Funds may buy, each of these Funds
may buy debt securities that have been sold to the public and other
obligations customarily acquired by institutional investors and, except
Municipal Bond Fund, may lend its portfolio securities and enter into
repurchase agreements. Asset Strategy Fund may not make loans, except
(a) by lending portfolio securities provided that no securities loan
will be made if, as a result thereof, more than 10% of this Fund's
total assets (taken at current value) would be lent to another party;
(b) through the purchase of a portion of an issue of debt securities in
accordance with its investment objective, policies, and limitations;
and (c) by engaging in repurchase agreements with respect to portfolio
securities.
THIS PROXY/AUTHORIZATION AND DIRECTION OF EXECUTION OF PROXY, IF PROPERLY
EXECUTED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED.
IF NO DIRECTION IS MADE FOR A PROPOSAL, THE SHARES WILL BE VOTED "FOR" THAT
PROPOSAL.
Please vote by filling in the appropriate boxes below, as shown, using blue or
black ink or dark pencil. Do not use red ink.
NOTE: YOUR PROXY IS NOT VALID UNLESS IT IS SIGNED.
Please fold and detach card at perforation. Return bottom portion only.
Please vote by filling in the boxes below.
1. To elect as Directors
H. Bellmon; D. Buchanan; J. Concannon; J. Dillingham; L. Graves; J. Hayes;
G. Johnson; W. Morgan; R. Richey; W. Rogers; F. Ross; E. Schwartz;
K. Tucker; F. Vogel; P. Wise
/ /FOR ALL NOMINEES LISTED EXCEPT THOSE BELOW*
/ /AGAINST OR ABSTAIN AS TO ALL NOMINEES
*To withhold authority to vote for any individual nominee, please write name on
the line below.
________________________________________________________________________________
2. To ratify the selection of FOR AGAINST ABSTAIN
Deloitte & Touche LLP / / / / / /
as the Corporation's independent
accountants for its current fiscal year
3. For each Fund: To approve FOR AGAINST ABSTAIN
changes to certain of its ALL* ALL ALL
fundamental investment policies / / / / / /
and restrictions
3.1 Repurchase Transactions
3.2 Options, Commodities and Futures
3.3 Margin Purchases
3.4 Short Sales
3.5 Warrants and Rights
3.6 Arbitrage Transactions
3.7 Securities Owned by Certain Persons
3.8 Loans
*To vote against a particular proposed change, refer to the proxy statement for
the changes applicable to the Fund and write the number of the sub-proposal(s)
you do NOT want to change on the line below.
________________________________________________________________________________
4. For Asset Strategy Fund only: FOR AGAINST ABSTAIN
To approve a change in the Fund's goal / / / / / /
<PAGE>
YOUR VOTE IS IMPORTANT!
To avoid the expense of adjourning the meeting to a subsequent date, please
sign, date and return all proxies received in the enclosed post-paid envelope.
Please fold and detach card at perforation. Return bottom portion only .
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Keith A. Tucker and Sharon K. Pappas, or either
of them (or their substitutes), as attorneys and proxies of the undersigned,
with full power of substitution to represent and vote all of the shares of
Waddell & Reed Funds, Inc. in which the undersigned own shares and which are
entitled to be voted at the Special Meeting of Shareholders of Waddell & Reed
Funds, Inc. to be held July 24, 1997, at 10:00 a.m., local time, at 6300
Lamar Avenue, Overland Park, Kansas 66202, and any adjournment(s) thereof, and
revoking all proxies heretofore given, as designated on the reverse side of this
card. As to any other matter, the attorneys and proxies shall be authorized to
vote in accordance with their best judgment. This proxy shall remain in effect
for a period of one year from its date. Receipt of the Proxy Statement is
hereby acknowledged.
Dated: ____________________________________, 1997
SIGN BELOW - Please sign exactly as your name
appears hereon. If shares are registered in more
than one name, all should sign but if one
signs, it binds the others. When signing as
attorney, executor, administrator, agent,
trustee or guardian, please give full title as
such. If a corporation, please sign in full
corporate name by an authorized person. If a
partnership, please sign in partnership name by an
authorzed person .
_______________________________________________
/ /
/ /
/ /
______________________________________________
Signature(s), Title(s), if applicable
