WADDELL & REED
FUNDS, INC.
Total Return Fund
Growth Fund
Science and Technology Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
High Income Fund
Municipal Bond Fund
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1998
<PAGE>
WADDELL & REED TOTAL RETURN FUND
MANAGERS' LETTER
MARCH 31, 1998
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Total Return Fund for the
fiscal year ended March 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the last fiscal year, we experienced a dramatic economic event: the
Asian financial crisis. While the general perception was that the U.S. and
other economies would be impacted, the depth of the impact became the more
important uncertainty. The financial markets quickly discounted the obvious
Asia effect and began to refocus on a somewhat slower U.S. economy and
potentially weaker corporate profits. In fact, a dramatic slowing in the Asian
economies has occurred. However, the U.S. and Europe have been stronger than
expected, offsetting some of the weakness in Asia.
Our investment strategy remained unchanged. We continued to focus on large
U.S. corporations which enjoy dominant global market leadership in their
industries. Key investment themes that have received emphasis in the Fund's
portfolio include: (a) industrial companies that are long-term beneficiaries of
the great improvements in information technology; (b) consumer goods and
services companies that are thriving in this continued long U.S. economic cycle;
(c) healthcare related issues, such as drugs, medical devices and medical
services; and (d) technology leaders in semiconductors, software, networking
equipment and telecommunications equipment.
The strategies and techniques we applied resulted in the Fund's performance
remaining below that of the S&P 500 Index and consistent with the Lipper Growth
and Income Fund Universe Average, as both are charted on the following page.
Those indexes reflect the performance of securities that generally represent the
stock market (the S&P 500 Index) and the universe of funds with similar
investment objectives (the Lipper Growth and Income Fund Universe Average).
We expect real U.S. economic growth in 1998 to be moderate with continued
low inflation. We anticipate a moderate interest rate environment. The growth
rate of U.S. corporate earnings is expected to slow as 1998 progresses.
However, our concerns regarding Asian economic problems are being offset
somewhat by continuing improvement observable in European economies. Although
our outlook is positive, our expectations for performance of the U.S. stock
market is for more normal returns compared to the extremely strong gains of the
past three years.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Russell E. Thompson
James D. Wineland
Managers, Waddell & Reed Funds, Inc. Total Return Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Total Return Fund, Class B Shares,
The S&P 500 Index
and The Lipper Growth and Income Fund Universe Average
Total Lipper
Return Growth and
Fund Income Fund
Class B S & P 500 Universe
Shares Index Average
--------- --------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,147 10,962 11,053
03/31/94 12,073 11,123 11,395
03/31/95 12,818 12,855 12,509
03/31/96 16,503 16,982 16,001
03/31/97 18,472 20,334 18,490
03/31/98 25,781 31,629 25,925
===== Total Return Fund, Class B Shares (1) (2) -- $25,781
+++++ The S&P 500 Index (1) -- $31,629
- ----- Lipper Growth & Income Fund Universe Average (1) -- $25,925
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return *
Class B ** Class Y
-----------------------------
Year Ended
3/31/98 36.57% 40.63%
5 Years Ended
3/31/98 18.26% N/A
5+ Years Ended
3/31/98*** 18.59% N/A
Life of
Class Y **** N/A 26.28%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (5 Years and 5+ Years).
***9/21/92 (the initial offering date) through 3/31/98
****12/29/95 (the date on which Fund Class Y shares were first acquired by
investors) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
TOTAL RETURN FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Current income while
securities convertible into seeking capital
common stocks. growth.
Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that have a record
of paying regular dividends on common
stock and also have the potential for
capital appreciation.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Total Return Fund
from time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 1998
- ----------------------------------------
CAPITAL GAINS DISTRIBUTION $0.78
=====
NET ASSET VALUE ON
3/31/98 $24.48 adjusted to:$25.26(A)
3/31/97 18.18
------
CHANGE PER SHARE $ 7.08
======
Past performance is not necessarily indicative of future results.
(A)This number includes the capital gains distribution of $0.78 paid in December
1997 added to the actual net asset value on March 31, 1998.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 36.57% 39.57%
5-year period ended 3-31-98 18.26% 18.26%
Period from 9-21-92*
through 3-31-98 18.59% 18.59%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Total Return Fund had net assets totaling $473,912,670
invested in a diversified portfolio of:
86.09% Common Stocks
13.91% Cash and Cash Equivalents
As a shareholder of Total Return Fund, for every $100 you had invested on March
31, 1998, your Fund owned:
$56.89 Manufacturing Stocks
13.91 Cash and Cash Equivalents
9.59 Finance, Insurance and Real Estate Stocks
8.99 Wholesale and Retail Trade Stocks
5.55 Transportation, Communication, Electric
and Sanitary Services Stocks
4.13 Services Stocks
0.94 Agriculture, Forestry and Fisheries Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.57%
Gap, Inc. (The) ........................ 165,750 $ 7,458,750
Building Materials and Garden Supplies - 0.90%
Home Depot, Inc. (The) ................. 63,300 4,268,762
Business Services - 0.46%
ABM Industries Incorporated ............ 70,800 2,199,190
Chemicals and Allied Products - 17.89%
Air Products and Chemicals, Inc. ....... 63,500 5,262,562
Avon Products, Inc. .................... 27,500 2,145,000
Colgate-Palmolive Company .............. 66,200 5,734,575
Dow Chemical Company (The) ............. 31,800 3,088,575
du Pont (E.I.) de Nemours and Company .. 110,400 7,507,200
Gillette Company (The) ................. 103,200 12,248,498
Lilly (Eli) and Company ................ 74,000 4,412,250
Merck & Co., Inc. ...................... 38,700 4,968,112
Monsanto Company ....................... 101,100 5,257,200
Novartis AG (A) ........................ 2,700 4,778,981
PPG Industries, Inc. ................... 69,000 4,687,653
Pfizer Inc. ............................ 71,800 7,157,527
Praxair, Inc. .......................... 27,600 1,419,661
Procter & Gamble Company (The) ......... 66,200 5,585,625
Solutia Inc. ........................... 8,340 248,115
Union Carbide Corporation .............. 48,300 2,421,038
Warner-Lambert Company ................. 46,100 7,851,383
Total ................................. 84,773,955
Communication - 2.92%
AirTouch Communications* ............... 56,000 2,740,472
Clear Channel Communications, Inc.* .... 17,200 1,685,600
Cox Communications, Inc.* .............. 77,900 3,271,800
Grupo Televisa, S.A., GDR* ............. 32,600 1,193,975
SBC Communications Inc. ................ 50,800 2,216,150
WorldCom, Inc.* ........................ 64,000 2,753,984
Total ................................. 13,861,981
Depository Institutions - 4.58%
BankAmerica Corporation ................ 55,200 4,560,900
Chase Manhattan Corporation (The) ...... 30,500 4,113,687
Citicorp ............................... 30,900 4,387,800
Norwest Corporation .................... 125,000 5,195,250
U. S. Bancorp. ......................... 27,600 3,443,100
Total ................................. 21,700,737
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Eating and Drinking Places - 0.07%
TRICON Global Restaurants, Inc.* ....... 11,050 $ 332,185
Electric, Gas and Sanitary Services - 0.98%
Duke Energy Corp. ...................... 78,300 4,663,705
Electronic and Other Electric Equipment - 10.07%
Analog Devices, Inc.* .................. 157,800 5,266,575
Emerson Electric Co. ................... 44,200 2,881,265
General Electric Company ............... 132,600 11,411,821
General Instrument Corporation* ........ 141,400 2,960,492
Intel Corporation ...................... 143,400 11,189,646
Lucent Technologies Inc. ............... 26,400 3,375,900
Maytag Corporation ..................... 112,200 5,364,506
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 110,500 5,252,176
Total ................................. 47,702,381
Food and Kindred Products - 3.30%
Bestfoods .............................. 43,100 5,037,312
Coca-Cola Company (The) ................ 63,900 4,948,224
Corn Products International, Inc.* ..... 10,775 386,553
Panamerican Beverages, Inc., Ordinary
Class A ............................... 14,300 573,787
PepsiCo, Inc. .......................... 110,500 4,710,063
Total ................................. 15,655,939
Food Stores - 0.82%
Kroger Co. (The)* ...................... 84,400 3,898,183
Forestry - 0.94%
Georgia-Pacific Corporation ............ 23,500 1,521,625
Georgia-Pacific Corporation,
Timber Group .......................... 23,500 603,645
Weyerhaeuser Company ................... 41,400 2,339,100
Total ................................. 4,464,370
Furniture and Fixtures - 0.46%
Lear Corporation* ...................... 38,600 2,176,075
Furniture and Home Furnishings Stores - 0.38%
Circuit City Stores, Inc. .............. 41,600 1,778,400
General Merchandise Stores - 3.70%
Dayton Hudson Corporation .............. 75,800 6,670,400
Federated Department Stores, Inc.* ..... 45,900 2,378,171
Wal-Mart Stores, Inc. .................. 167,400 8,505,929
Total ................................. 17,554,500
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Health Services - 0.66%
Tenet Healthcare Corporation* .......... 86,300 $ 3,133,726
Industrial Machinery and Equipment - 8.71%
Applied Materials, Inc.* ............... 116,600 4,113,765
Case Corporation ....................... 62,200 4,237,375
Caterpillar Inc. ....................... 89,600 4,933,555
Cisco Systems, Inc.* ................... 88,200 6,033,409
Deere & Company ........................ 108,800 6,738,746
Eaton Corporation ...................... 27,600 2,627,161
Hewlett-Packard Company ................ 12,900 818,337
Ingersoll-Rand Company ................. 33,150 1,589,112
International Business Machines Corporation 34,200 3,552,525
Parker Hannifin Corporation ............ 49,650 2,544,563
United Technologies Corporation ........ 44,200 4,080,190
Total ................................. 41,268,738
Instruments and Related Products - 4.99%
General Motors Corporation, Class H .... 40,900 1,850,725
Guidant Corporation .................... 107,000 7,851,125
Medtronic, Inc. ........................ 88,400 4,585,750
Raytheon Company, Class A .............. 27,599 1,569,693
Xerox Corporation ...................... 73,100 7,780,545
Total ................................. 23,637,838
Insurance Carriers - 1.53%
American International Group, Inc. ..... 57,500 7,241,377
Miscellaneous Manufacturing Industries - 0.37%
Tyco International Ltd. ................ 32,000 1,748,000
Miscellaneous Retail - 0.55%
Costco Companies, Inc.* ................ 48,500 2,593,198
Motion Pictures - 0.87%
Walt Disney Company (The) .............. 38,700 4,131,225
Nondepository Institutions - 3.48%
Associates First Capital Corporation,
Class A ............................... 30,800 2,433,200
Fannie Mae ............................. 102,600 6,489,450
Freddie Mac ............................ 159,200 7,551,970
Total ................................. 16,474,620
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Paper and Allied Products - 1.12%
Champion International Corporation ..... 30,700 $ 1,667,378
International Paper Company ............ 35,400 1,657,145
Willamette Industries, Inc. ............ 52,800 1,983,274
Total ................................. 5,307,797
Petroleum and Coal Products - 2.93%
British Steel plc, ADR ................. 52,900 4,552,680
Exxon Corporation ...................... 31,200 2,109,900
Mobil Corporation ...................... 45,200 3,463,450
Royal Dutch Petroleum Company .......... 66,400 3,772,317
Total ................................. 13,898,347
Prepackaged Software - 2.14%
BMC Software, Inc.* .................... 36,100 3,024,494
Microsoft Corporation* ................. 79,400 7,103,759
Total ................................. 10,128,253
Primary Metal Industries - 0.52%
Aluminum Company of America ............ 35,900 2,470,351
Railroad Transportation - 0.44%
Burlington Northern Santa Fe Corporation 19,900 2,072,087
Rubber and Miscellaneous Plastics Products - 0.88%
Goodyear Tire & Rubber Company (The) ... 55,200 4,181,400
Transportation By Air - 1.21%
AMR Corporation* ....................... 22,100 3,164,433
Delta Air Lines, Inc. .................. 21,700 2,564,658
Total ................................. 5,729,091
Transportation Equipment - 5.65%
AlliedSignal Inc. ...................... 77,400 3,250,800
Boeing Company (The) ................... 70,200 3,659,175
Chrysler Corporation ................... 118,000 4,919,066
Dana Corporation ....................... 42,000 2,443,854
Ford Motor Company ..................... 63,800 4,135,006
General Motors Corporation ............. 49,400 3,331,387
Northrop Grumman Corporation ........... 46,700 5,017,308
Total ................................. 26,756,596
Wholesale Trade - Nondurable Goods - 1.00%
Safeway Inc.* .......................... 128,000 4,727,936
TOTAL COMMON STOCKS - 86.09% $407,989,693
(Cost: $231,686,783)
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Commercial Paper
Communication - 2.03%
GTE Corporation:
5.72%, 4-17-98 ........................ $ 3,890 $ 3,880,111
5.68%, 4-24-98 ........................ 5,780 5,759,025
Total ................................. 9,639,136
Electric, Gas and Sanitary Services - 2.96%
Bay State Gas Co.,
5.54%, 4-17-98 ........................ 4,385 4,374,203
Houston Industries Incorporated,
5.62%, 4-2-98 ......................... 9,670 9,668,490
Total ................................. 14,042,693
Fabricated Metal Products - 1.24%
Danaher Corporation,
5.6875%, Master Note .................. 5,857 5,857,000
Food and Kindred Products - 2.36%
ConAgra, Inc.,
5.61%, 4-9-98 ......................... 10,655 10,641,680
General Mills, Inc.,
5.5425%, Master Note .................. 517 517,000
Total ................................. 11,158,680
Industrial Machinery and Equipment - 2.26%
Ingersoll-Rand Company,
5.59%, 4-6-98 ......................... 10,715 10,706,681
Nondepository Institutions - 1.84%
General Electric Capital Corporation,
5.54%, 4-10-98 ........................ 8,740 8,727,895
Textile Mill Products - 0.12%
Sara Lee Corporation,
5.5375%, Master Note .................. 561 561,000
Transportation Equipment - 1.31%
Echlin Inc.,
5.83%, 4-21-98 ........................ 6,250 6,229,757
Total Commercial Paper - 14.12% 66,922,842
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Backed by Irrevocable
Letter of Credit) - 1.30%
Electric, Gas and Sanitary Services
TMI-1 Fuel Corp. (Union Bank of Switzerland),
5.53%, 4-2-98 ......................... $6,135 $ 6,134,058
TOTAL SHORT-TERM SECURITIES - 15.42% $ 73,056,900
(Cost: $73,056,900)
TOTAL INVESTMENT SECURITIES - 101.51 $481,046,593
(Cost: $304,743,683)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.51%) (7,133,923)
NET ASSETS - 100.00% $473,912,670
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
WADDELL & REED GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1998
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Growth Fund for the fiscal year
ended March 31, 1998. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
After a disappointing prior year, small company stocks performed quite well
in the past fiscal year. While their returns trailed the performance of blue
chip stocks during 1996, the recently completed fiscal year saw the performance
gap narrow considerably.
We pursued three noteworthy strategies during the past fiscal year that
positively impacted the Fund. First, we held onto large positions, even though
they declined during the early part of the year. Second, we purchased more
shares of some of our holdings that had gone down in price. Third, we added
several quality stocks in the telecommunications sector.
The strategies and techniques we applied resulted in the Fund significantly
outperforming the indexes charted on the following page. Those indexes reflect
the performance of securities that generally represent the small companies
sector of the stock market (the Nasdaq Industrials Index) and the universe of
funds with similar investment objectives (the Lipper Small Company Growth Fund
Universe Average). We have chosen to use the Lipper Small Company Growth Fund
Universe Average beginning with this year's Annual Report, instead of the Lipper
Growth Fund Universe Average that had been presented in prior years. We believe
that the Small Company Universe Average provides a more accurate basis for
comparing the Fund's performance to the performance of the types of securities
in which the Fund invests. Both indexes are presented on the following page in
this year's Annual Report for comparison purposes.
As we begin this fiscal year, some pause in the small cap market seems
warranted due to the likelihood of slowing earnings gains. However, factors
such as money flow, inflation and interest rates should be favorable for an
overall positive outcome in the next fiscal year. We will continue searching
for attractive investment opportunities, possibly trimming some of the Fund's
large positions in the process.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Mark G. Seferovich
Manager, Waddell & Reed Funds, Inc. Growth Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Growth Fund, Class B Shares,
The Nasdaq Industrials Index
and The Lipper Small Company Growth Fund Universe Average
Lipper
Lipper Small
Growth Growth Company
Fund, Nasdaq Fund Growth Fund
Class B Industrials Universe Universe
Shares Index Average Average
------- ----------- -------- -----------
09/30/92 Purchase 10,000 10,000 10,000 10,000
03/31/93 11,771 11,493 11,177 11,830
03/31/94 14,497 12,548 11,674 13,125
03/31/95 17,775 12,913 12,694 14,136
03/31/96 22,497 16,507 16,254 18,648
03/31/97 20,029 16,396 18,130 19,539
03/31/98 33,122 21,933 25,890 28,083
===== Growth Fund, Class B Shares (1) (2) -- $33,122
***** Nasdaq Industrial Index(1) - $21,933
- ----- Lipper Small Company Growth Fund Universe Average (1) -- $25,890
+++++ Lipper Small Company Growth Fund Universe Average (1) -- $28,083
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of all the indexes
are not available, the investments were effected as of September 30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class B** Class Y
-----------------------------
Year Ended
3/31/98 62.37% 66.78%
5 Years Ended
3/31/98 22.99% N/A
5+ Years Ended
3/31/98*** 24.20% N/A
Life of
Class Y **** N/A 21.61%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (5 Years and 5+ Years).
***9/21/92 (the initial offering date) through 3/31/98
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
GROWTH FUND
PORTFOLIO STRATEGY:
Common stocks and OBJECTIVE: Capital appreciation.
securities convertible
into common stocks.
Cash Reserves STRATEGY: Invests primarily in common stocks, or
securities convertible into common
stocks, of companies that offer above-
average growth potential, including
relatively new or unseasoned companies.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Growth Fund from
time to time. For more information
about the Fund's cash reserves
flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- ----------------------------------------
CAPITAL GAINS DISTRIBUTION $1.15
=====
NET ASSET VALUE ON
3/31/98 $28.57 adjusted to:$29.72(A)
3/31/97 18.16
------
CHANGE PER SHARE $11.56
======
Past performance is not necessarily indicative of future results.
(A)This number includes the capital gains distribution of $1.15 paid in
December 1997 added to the actual net asset value on March 31, 1998.
TOTAL RETURN HISTORY
Average Annual Total Return
----------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 62.37% 65.37%
5-year period ended 3-31-98 22.99% 22.99%
Period from 9-21-92*
through 3-31-98 24.20% 24.20%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Growth Fund had net assets totaling $330,147,147 invested in
a diversified portfolio of:
83.51% Common Stocks
16.49% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on March 31,
1998, your Fund owned:
$40.95 Services Stocks
17.17 Manufacturing Stocks
16.49 Cash and Cash Equivalents
15.36 Transportation, Communication, Electric
and Sanitary Services Stocks
6.44 Wholesale and Retail Trade Stocks
3.59 Finance, Insurance and Real Estate Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 1.91%
O'Reilly Automotive, Inc.* ............. 230,000 $ 6,317,640
Business Services - 18.69%
America Online, Inc.* .................. 200,000 13,662,400
CKS Group, Inc.* ....................... 104,500 1,959,375
ENVOY Corporation* ..................... 100,000 4,306,200
FactSet Research Systems, Inc.* ........ 175,000 6,256,250
FORE Systems, Inc.* .................... 200,000 3,156,200
Getty Images, Inc.* .................... 150,000 3,773,400
HBO & Company .......................... 110,000 6,637,730
IMNET Systems, Inc.* ................... 100,000 2,243,700
Parametric Technology Corporation* ..... 200,000 6,656,200
SCB Computer Technology, Inc.* ......... 225,000 5,203,125
Shared Medical Systems Corporation ..... 100,000 7,837,500
Total ................................. 61,692,080
Communication - 12.57%
COLT Telecom Group plc, ADR* ........... 140,000 13,146,840
Global TeleSystems Group, Inc.* ........ 150,000 7,031,250
Intermedia Communications of
Florida, Inc.* ........................ 150,000 11,953,050
360. Communications Company* ........... 300,000 9,375,000
Total ................................. 41,506,140
Electric, Gas and Sanitary Services - 0.97%
Superior Services, Inc.* ............... 102,500 3,199,845
Engineering and Management Services - 2.61%
MAXIMUS, Inc.* ......................... 150,000 4,490,550
Transition Systems, Inc.* .............. 200,000 4,112,400
Total ................................. 8,602,950
Food and Kindred Products - 2.25%
American Italian Pasta Company,
Class A* .............................. 100,000 3,612,500
Tootsie Roll Industries, Inc. .......... 53,045 3,802,637
Total ................................. 7,415,137
Furniture and Home Furnishings Stores - 1.73%
Williams-Sonoma, Inc.* ................ 98,750 5,715,156
Health Services - 5.38%
American Healthcorp, Inc.* ............. 222,000 2,150,514
Amsurg Corp., Class A .................. 20,460 183,485
Amsurg Corp., Class B .................. 142,515 1,273,657
Concentra Managed Care, Inc.* .......... 174,135 5,360,049
Quorum Health Group, Inc.* ............. 150,000 5,048,400
Vencor, Incorporated* .................. 125,000 3,742,125
Total ................................. 17,758,230
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Hotels and Other Lodging Places - 1.11%
Vail Resorts, Inc.* .................... 125,500 $ 3,647,281
Industrial Machinery and Equipment - 1.15%
Franklin Electronic Publishers, Inc.* .. 150,000 1,706,250
Tractor Supply Company* ................ 100,000 2,093,700
Total ................................. 3,799,950
Instruments and Related Products - 6.24%
Lunar Corporation* ..................... 160,000 3,184,960
Maxxim Medical, Inc.* .................. 150,000 4,303,050
Molecular Dynamics, Inc.* .............. 350,000 4,998,350
STERIS Corporation* .................... 150,000 8,109,300
Total ................................. 20,595,660
Insurance Carriers - 1.57%
United HealthCare Corporation .......... 80,000 5,180,000
Miscellaneous Manufacturing Industries - 3.69%
Blyth Industries, Inc.* ................ 200,000 6,825,000
Tiffany & Co. .......................... 110,000 5,355,570
Total ................................. 12,180,570
Miscellaneous Retail - 1.15%
MSC Industrial Direct Co., Inc.* ....... 70,000 3,793,090
Personal Services - 3.36%
Block (H&R), Inc. ...................... 120,000 5,707,440
Equity Corporation International* ...... 225,000 5,385,825
Total ................................. 11,093,265
Prepackaged Software - 9.80%
BMC Software, Inc.* .................... 75,000 6,283,575
Broderbund Software, Inc.* ............. 200,000 3,656,200
Cerner Corporation* .................... 200,000 4,275,000
Dendrite International, Inc.* .......... 200,000 5,737,400
Expert Software, Inc.* ................. 150,000 665,550
Intuit Inc. ............................ 175,000 8,476,475
J. D. Edwards* ......................... 100,000 3,275,000
Total ................................. 32,369,200
Railroad Transportation - 1.33%
Kansas City Southern Industries, Inc. .. 100,000 4,400,000
Real Estate - 2.02%
Stewart Enterprises, Inc., Class A ..... 120,000 6,663,720
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Stone, Clay and Glass Products - 3.26%
Department 56, Inc.* ................... 150,000 $ 5,700,000
Gentex Corporation* .................... 150,000 5,067,150
Total ................................. 10,767,150
Tobacco Products - 0.58%
General Cigar Holdings, Inc.* .......... 125,000 1,914,000
Trucking and Warehousing - 0.49%
Heartland Express, Inc.* ............... 57,733 1,620,104
Wholesale Trade - Durable Goods - 1.65%
OmniCare, Inc. ......................... 137,600 5,452,400
TOTAL COMMON STOCKS - 83.51% $275,683,568
(Cost: $166,352,987)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Apparel and Accessory Stores - 0.49%
Limited Inc. (The),
5.7%, 4-30-98 ......................... $1,620 1,612,561
Communication - 3.11%
Dominion Resources Inc.,
5.69%, 5-15-98 ........................ 2,500 2,482,614
GTE Corporation,
5.72%, 4-17-98 ........................ 7,805 7,785,158
Total ................................. 10,267,772
Electric, Gas and Sanitary Services - 1.33%
Bay State Gas Co.,
5.54%, 4-17-98 ........................ 2,865 2,857,946
Public Service Co. Of Colorado,
5.9%, 4-6-98 .......................... 1,545 1,543,734
Total ................................. 4,401,680
Fabricated Metal Products - 1.28%
Danaher Corporation,
5.6875%, Master Note .................. 4,241 4,241,000
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Food and Kindred Products - 1.31%
ConAgra, Inc.,
5.87%, 4-9-98 ......................... $4,145 $ 4,139,593
General Mills, Inc.,
5.5425%, Master Note .................. 196 196,000
Total ................................. 4,335,593
Food Stores - 1.10%
Albertson's Inc.,
5.53%, 4-21-98 ........................ 3,635 3,623,832
Insurance Carriers - 2.71%
Transamerica Finance Corp.,
5.48%, 4-9-98 ......................... 8,960 8,949,089
Nondepository Institutions - 1.73%
Associates Financial Services Co. of Puerto Rico, Inc.,
5.49%, 4-2-98 ......................... 5,700 5,699,131
Security and Commodity Brokers - 1.90%
Merrill Lynch & Co., Inc.,
5.55%, 4-9-98 ......................... 6,285 6,277,249
Textile Mill Products - 0.07%
Sara Lee Corporation,
5.5375%, Master Note .................. 227 227,000
Transportation Equipment - 1.21%
Echlin Inc.,
5.83%, 4-21-98 ........................ 4,000 3,987,044
TOTAL SHORT-TERM SECURITIES - 16.24% $ 53,621,951
(Cost: $53,621,951)
TOTAL INVESTMENT SECURITIES - 99.75% $329,305,519
(Cost: $219,974,938)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.25% 841,628
NET ASSETS - 100.00% $330,147,147
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
WADDELL & REED SCIENCE AND TECHNOLOGY FUND
MANAGER'S LETTER
MARCH 31, 1998
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Science and Technology Fund for
the fiscal year ended March 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period. Because the public offering of shares of the Fund began on July 31,
1997, performance data will reflect activity of the Fund for less than a full
year.
During the past fiscal year, U.S. economic growth remained strong and
unemployment levels were low. Despite these signs of economic strength, the
consumer price index (the most widely used inflation indicator) was an amazingly
low 0.2% (annualized) during the last fiscal quarter. In the third calendar
quarter, Asian markets and economies were impacted by a major currency crisis.
The negative effect was mainly confined to Asian markets, while the U.S. economy
showed surprising resilience.
The Asian crisis, however, negatively impacted many technology stocks,
since these companies tend to have large exposures to those economies. The Fund
avoided most of this turmoil by selling personal computer, networking device and
semiconductor issues before the crisis became full-blown. The Fund benefited by
being overweighted in the Internet-related stocks throughout the year, where
Asian events were not particularly significant. The Fund also maintained large
positions in the healthcare sector, specifically in the drug industry, medical
devices, and hospital software and systems, also immune to Asia.
The strategies and techniques we applied resulted in the Fund significantly
outperforming the S&P 400 Index and the Lipper Science & Technology Fund
Universe Average for the partial year, both as charted on the following page.
The S&P 400 Index reflects the performance of securities that generally
represent the non-financial institution portion of the stock market. The Lipper
Index reflects the performance of the universe of funds with similar investment
objectives as the Fund.
The Asian crisis may continue to affect the markets into the next fiscal
year by hurting U.S. corporate profits. The transition to a single currency in
Europe may also cause some disruption for U.S. companies and impact the Fund.
In light of the Asian crisis, we are diversifying more into U.S. based companies
with less foreign exposure. Since the Fund started in July 1997, cash has been
put into the market very deliberately, given record high valuations. Going
forward, the Fund should benefit from the dramatic increases in productivity
brought about by developments in computer software, networking devices, biology,
pharmaceuticals and healthcare.
Thank you very much for your continued support and confidence.
Respectfully,
Abel Garcia
Manager, Waddell & Reed Funds, Inc. Science and Technology Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Science and Technology Fund, Class B Shares,
The S&P 400 Index
and the Lipper Science and Technology Fund Universe Average
Lipper
Science and
Technology
Science and S&P Fund
Technology Fund 400 Universe
Class B Shares Index Average
--------------- --------- -------
07/31/97 Purchase 10,000 10,000 10,000
09/30/97 10,380 9,939 10,537
12/31/97 10,220 10,092 9,106
03/31/98 12,010 10,587 10,650
===== Science and Technology Fund, Class B Shares(1) - $12,010
+++++ S&P 400 Index - $10,587
***** Lipper Science and Technology Fund Universe Average - $10,650
(1) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Aggregate Total Return
Class B*
----------------------
For the Period
Ended
3/31/98** 17.10%
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The return shown reflects
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of the period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC applied for the
period shown is 3%.
**7/31/97 (the initial offering date) through 3/31/98
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- ------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
PORTFOLIO STRATEGY:
Technology-related OBJECTIVE: Long-term capital growth.
stocks
Generally at least 80% STRATEGY: Invests in common
in science or technology stocks of companies whose
securities; may have more products, processes or services
than 20% in debt securities. are expected to benefit from scientific
or technological discoveries or
developments.
Cash Reserves The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Science and
Technology Fund from time to time. For
more information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (DECEMBER)
<PAGE>
PERFORMANCE SUMMARY -- Class B Shares
PER SHARE DATA
For the Period Ended March 31, 1998
- --------------------------------------
NET ASSET VALUE ON
3/31/98 $12.01
7/31/97* 10.00
------
CHANGE PER SHARE $ 2.01
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Aggregate Total Return
---------------------------
With Without
Period CDSC** CDSC***
- ------ ----------- ------------
Period from 7-31-97*
through 3-31-98 17.10% 20.10%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of the period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of the period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Science and Technology Fund had net assets totaling
$7,614,745 invested in a diversified portfolio of:
84.46% Common Stocks
15.54% Cash and Cash Equivalents
As a shareholder of Science and Technology Fund, for every $100 you had invested
on March 31, 1998, your Fund owned:
$51.74 Services Stocks
15.54 Cash and Cash Equivalents
14.43 Manufacturing Stocks
12.69 Transportation, Communication, Electric, Gas
and Sanitary Services Stocks
5.60 Wholesale and Retail Trade Stocks
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 1.72%
Fastenal Company ....................... 3,000 $ 130,779
Business Services - 26.44%
America Online, Inc.* .................. 3,200 218,598
American Management Systems, Incorporated* 3,000 82,311
At Home Corporation, Series A* ......... 4,000 134,872
Cendant Corporation* ................... 4,000 158,500
Fiserv, Inc.* .......................... 1,000 63,437
FORE Systems, Inc.* .................... 5,000 78,905
HBO & Company .......................... 2,000 120,686
IDX Systems Corporation* ............... 3,000 129,750
MemberWorks Incorporated* .............. 5,000 150,000
Parametric Technology Corporation* ..... 4,000 133,124
Primark Corporation* ................... 5,000 213,750
Simulation Sciences, Inc.* ............. 6,000 58,872
TMP Worldwide Inc.* .................... 4,000 126,248
Wind River Systems, Inc.* .............. 4,000 159,500
Yahoo! Inc.* ........................... 2,000 184,686
Total ................................. 2,013,239
Communication - 12.69%
Clear Channel Communications, Inc.* .... 2,500 245,000
COLT Telecom Group plc, ADR* ........... 2,500 234,765
Global TeleSystems Group, Inc.* ........ 5,000 234,375
Intermedia Communications of Florida,
Inc.* ................................. 2,000 159,374
Paging Network, Inc.* .................. 6,000 92,622
Total ................................. 966,136
Electronic and Other Electric Equipment - 7.19%
Advanced Fibre Communications, Inc.* ... 5,000 182,185
Concord Communications, Inc.* .......... 3,700 96,429
Excel Switching Corporation* ........... 5,000 127,185
RELTEC Corporation* .................... 4,000 141,872
Total ................................. 547,671
Engineering and Management Services - 5.21%
Incyte Pharmaceuticals, Inc.* .......... 4,000 185,500
Paychex, Inc. .......................... 2,000 115,312
Quintiles Transnational Corp.* ......... 2,000 96,312
Total ................................. 397,124
Food and Kindred Products - 1.03%
J. M. Smucker Company (The) ............ 3,000 78,561
Furniture and Fixtures - 1.85%
Lear Corporation* ...................... 2,500 140,938
Health Services - 1.02%
American Healthcorp, Inc.* ............. 8,000 77,496
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 4.36%
Bionx Implants, Inc.* .................. 4,000 $ 85,480
STERIS Corporation* .................... 3,000 162,186
Uniphase Corporation* .................. 2,000 84,124
Total ................................. 331,790
Prepackaged Software - 19.07%
BMC Software, Inc.* .................... 2,000 167,562
Citrix Systems, Inc.* .................. 3,000 162,375
HNC Software Inc.* ..................... 3,000 112,686
i2 Technologies, Inc.* ................. 1,000 65,593
Intuit Inc. ............................ 3,000 145,311
J. D. Edwards* ......................... 3,500 114,625
Networks Associates, Inc.* ............. 2,000 132,624
PeopleSoft, Inc.* ...................... 3,000 157,968
Transaction Systems Architects, Inc.,
Class A*............................... 4,000 155,748
Vantive Corporation (The)* ............. 3,000 109,500
Visio Corporation* ..................... 3,000 128,529
Total ................................. 1,452,521
Wholesale Trade -- Durable Goods - 1.56%
OmniCare, Inc. ......................... 3,000 118,875
Wholesale Trade -- Nondurable Goods - 2.32%
Cardinal Health, Inc. .................. 2,000 176,374
TOTAL COMMON STOCKS - 84.46% $6,431,504
(Cost: $5,192,050)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Communication - 3.41%
Dominion Resources Inc.,
5.69%, 4-9-98 ......................... $260 259,671
Food and Kindred Products - 3.26%
General Mills, Inc.,
5.5425%, Master Note .................. 248 248,000
Nondepository Institutions - 3.28%
Island Finance Puerto Rico Inc.,
5.48%, 4-14-98 ........................ 250 249,506
Textile Mill Products - 3.71%
Sara Lee Corporation,
5.5375%, Master Note .................. 283 283,000
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1998
Value
TOTAL SHORT-TERM SECURITIES - 13.66% $1,040,177
(Cost: $1,040,177)
TOTAL INVESTMENT SECURITIES - 98.12% $7,471,681
(Cost: $6,232,227)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.88% 143,064
NET ASSETS - 100.00% $7,614,745
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
WADDELL & REED INTERNATIONAL GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1998
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the International Growth Fund for
the fiscal year ended March 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Global inflation remained low during the past twelve months. Economic
growth was strong in Great Britain and began to pick up in Continental Europe
and Latin America. Japan's economic recovery continued to be plagued by
unresolved structural problems and the rest of the Asian economies plunged into
financial crisis.
The Fund's heavy concentration in European equities contributed to
continued positive performance. Particular attention was given to companies
involved in corporate restructuring and privatizations in both Europe and Latin
America. We remained significantly underweight relative to the Fund's benchmark
in Japanese equities. Our holdings in emerging areas of Asia were quickly
reduced in response to the financial crisis occurring in that region. As we
observed the rapidly deteriorating events in Asia, we also reduced our exposure
to emerging markets in general and vulnerable industries. Despite first quarter
market rebounds in parts of emerging Asia, we continue to wait for evidence of a
solid recovery in investor confidence in that region.
As charted on the following page, the strategies and techniques we applied
during the past fiscal year resulted in the Fund significantly outperforming the
securities index that reflects the performance of the securities market in
Europe, Australia and the Far East (the Morgan Stanley Capial International
E.A.FE. Index), and the universe of funds with similar investment objectives
(the Lipper International Fund Universe Average). The Fund's stellar
performance relative to the indexes resulted primarily from the Fund's
underweight position in Japan and overweight positions in Europe and Latin
America.
Much of Europe is committed to merge into a single currency in January of
1999. Global focus should remain on Europe this year as economic convergence
continues. Investors will remain cautious toward Asia as that region rebuilds
its financial structure. Our portfolio will remain heavily concentrated in
Europe as European companies should benefit from the move to a single currency.
We will continue to monitor Asian progress on economic restructuring prior to
committing significantly to the region.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Thomas A. Mengel
Manager, Waddell & Reed Funds, Inc. International Growth Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
International Growth Fund, Class B Shares(1),
The Morgan Stanley Capital International E.A.FE. Index
and The Lipper International Fund Universe Average
Morgan
Stanley
Capital
International International Lipper
Growth E.A.FE. International
Fund, Index Fund
Class B (with net Universe
Shares dividends) Average
--------- ---------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 9,753 10,767 10,747
03/31/94 9,785 13,190 13,649
03/31/95 10,160 13,992 13,397
03/31/96 10,937 15,717 15,561
03/31/97 13,654 15,946 16,853
03/31/98 18,466 18,913 20,050
===== International Growth Fund, Class B (2) (3) -- $18,466
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(2)
- - $18,913
*-*-* Lipper International Fund Universe Average(2) - $20,050
Past performance is not predictive of future performance. Indexes are
unmanaged.
Comparative performance of International Growth Fund, Class B Shares following
change in objective.
Morgan
Stanley
Capital
International International Lipper
Growth E.A.FE. International
Fund, Index Fund
Class B (with net Universe
Shares dividends) Average
--------- ---------- ----------
04/30/95 Purchase 10,000 10,000 10,000
03/31/96 10,625 10,826 11,257
03/31/97 13,265 10,983 12,192
03/31/98 17,939 13,027 14,505
===== International Growth Fund, Class B (3) (4) -- $17,939
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(4)
- - $13,027
*-*-* Lipper International Fund Universe Average(4) - $14,505
(1) Effective as of 4/20/95, the name of the Fund was changed to Waddell & Reed
International Growth Fund and its investment objective was changed to long-
term appreciation, with realization of income as a secondary objective.
(2) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(3) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
(4) Because the Fund's new investment objective became effective on a date
other than at the end of a month, and partial month calculations of the
performance of both the indexes are not available, the investments were
effected as of April 30, 1995.
Average Annual Total Return*
Class B** Class Y
-----------------------------
Year Ended
3/31/98 32.24% 36.45%
5 Years Ended
3/31/98 13.62% N/A
5+ Years Ended
3/31/98*** 11.98% N/A
Life of
Class Y **** N/A 28.50%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year of investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (5 Years and 5+ Years).
***9/21/92 (the initial offering date) through 3/31/98
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
INTERNATIONAL GROWTH FUND
PORTFOLIO STRATEGY:
Normally at least 80% in OBJECTIVE: Long-term appreciation
foreign securities. Not of capital with current
more than 75% in securities income as a secondary
in any one country. consideration.
Maximum of 15% in currency STRATEGY: Invests in securities
exchange contracts (common or preferred stocks
and/or debt securities) issued
Cash Reserves by companies or governments of any
nation, including the United States.
Securities are selected for their
potential to provide long-term growth.
The Fund provides an opportunity to
invest in foreign companies in many
different industries. International
Growth Fund (formerly Global Income
Fund) changed its name and investment
objective effective April 20, 1995.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the International
Growth Fund from time to time. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: ANNUALLY (December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- ----------------------------------------
CAPITAL GAINS DISTRIBUTION $1.38
=====
NET ASSET VALUE ON
3/31/98 $15.04 adjusted to: $16.42(A)
3/31/97 12.40
------
CHANGE PER SHARE $ 4.02
======
Past performance is not necessarily indicative of future results.
(A)This number includes the capital gains distribution of $1.38 paid in
December 1997 added to the actual net asset value on March 31, 1998.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 32.24% 35.24%
5-year period ended 3-31-98 13.62% 13.62%
Period from 9-21-92*
through 3-31-98 11.98% 11.98%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, International Growth Fund had net assets totaling $87,460,396
invested in a diversified portfolio of:
91.27% Common Stocks
6.07% Preferred Stocks
2.66% Cash and Cash Equivalents and Open Forward Currency Contracts
As a shareholder of International Growth Fund, for every $100 you had invested
on March 31, 1998, your Fund owned:
91.27% Common Stocks
6.07% Preferred Stocks
2.66% Cash and Cash Equivalents and Open Forward Currency Contracts
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Argentina - 0.33%
Capex S.A., Class A (A) ................ 50,000 $ 285,000
Australia - 1.08%
Cultus Petroleum N.L. (A)* ............. 200,000 280,434
Reinsurance Australia Corporation
Limited (A) ........................... 250,000 668,014
Total ................................. 948,448
Brazil - 0.62%
CompanLia de Saneamento Desico do Estado
De Sao Paulo (A) ...................... 2,200,000 541,777
China - 0.53%
Jinpan International Limited* .......... 57,000 463,125
Denmark - 0.57%
Sydbank A/S (A) ........................ 10,000 496,383
Finland - 1.35%
TT Tieto Oy, Class B (A) ............... 7,000 1,184,096
France - 12.35%
AXA-UAP (A) ............................ 10,000 1,029,497
Accor S.A. (A) ......................... 2,400 615,762
Alcatel Alsthom Compagnie
Generale d'Electricite (A) ............ 6,000 1,125,992
ALTRAN TECHNOLOGIES (A) ................ 4,208 533,028
Banque Nationale de Paris (A) .......... 10,000 776,964
Business Objects S.A., ADR* ............ 30,000 451,860
Cofidur (A) ............................ 10,933 365,186
Coflexip Stena Offshore SA, ADR ........ 16,400 1,012,700
Comptiors Modernes (A) ................. 1,400 714,774
GEA Grenobloise d'Electronique et
d'Automatismes (A) .................... 10,000 321,920
Generale de Geophysique S.A. (A)* ...... 4,500 581,634
SITA (A)* .............................. 375 79,814
Societe Generale (A) ................... 7,000 1,400,633
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 1,500 331,117
Suez Lyonnaise des Eaux (A) ............ 8,400 1,213,128
TF1, S.A. (A)* ......................... 2,000 248,499
Total ................................. 10,802,508
Germany - 6.82%
Altana AG (A) .......................... 6,000 464,096
Bayerische Vereinsbank AG (A) .......... 11,600 846,761
Commerzbank AG (A)* .................... 30,000 1,083,595
eff-eff Fritz Fuss GmbH & Co. (A) ...... 5,000 150,860
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Germany (Continued)
K&M Mobel AG (A)* ...................... 25,000 $ 232,508
Mannesmann AG (A) ...................... 2,300 1,683,897
Rhoen-Klinikum AG (A) .................. 10,773 1,147,551
VEBA AG (A) ............................ 5,000 354,710
Total ................................. 5,963,978
Italy - 6.08%
Alleanza Assicurazioni (A) ............. 80,300 1,277,260
Credito Italiano S.p.A. (A) ............ 275,000 1,358,257
Instituto Nazionale delle
Assicurazioni (A) ..................... 450,000 1,458,699
Telecom Italia Mobile S.p.A., Risp (A) . 200,000 1,225,318
Total ................................. 5,319,534
Japan - 2.31%
Canon Inc. (A) ......................... 30,000 677,419
Imagineer Co. Limited (A) .............. 19,000 132,558
Sankyo Co., Ltd. (A) ................... 20,000 555,139
Sony Corporation (A) ................... 7,700 652,738
Total ................................. 2,017,854
Mexico - 1.41%
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS ..................... 10,000 120,000
Gruma, S.A., Class B (A)* .............. 62,553 164,884
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (A)* ...... 280,000 711,753
Grupo Financiero Inbursa, S.A. de
C.V., Class B (A) ..................... 80,000 239,521
Total ................................. 1,236,158
Netherlands - 9.63%
Akzo Nobel N.V. (A) .................... 5,000 1,015,685
Benckiser N.V., Class B (A)* ........... 21,200 1,170,434
Cap Gemini N.V. (A) .................... 15,000 920,952
Fugro N.V. (A) ......................... 41,290 1,624,031
Internatio-Muller N.V. (A) ............. 18,450 656,653
Ordina N.V. (A)* ....................... 54,000 1,274,367
Philips Electronics N.V., NY Shares .... 10,000 734,370
Smit Internationale N.V. (A) ........... 33,000 1,025,710
Total ................................. 8,422,202
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Norway - 2.30%
Blom ASA (A) ........................... 60,000 $ 346,161
Merkantildata A/S (A) .................. 25,000 1,242,379
Schibsted AS (A) ....................... 24,000 424,834
Total ................................. 2,013,374
Portugal - 1.10%
Portugal Telecom, S.A., ADS ............ 18,300 959,597
Russian Federation - 1.12%
Open Joint Stock Company
Vimpel-Communications, ADR* ........... 22,000 979,000
Spain - 5.50%
Abengoa, S.A. (A) ...................... 15,000 1,337,494
Bankinter, S.A. (A) .................... 11,000 777,657
Fabrica Espanola de Productos Quimicos y
Farmaceuticos, S.A. (A) ............... 10,000 627,348
Tele Pizza, S.A. (A)* .................. 8,354 1,231,737
Telefonica de Espana, S.A. (A) ......... 19,000 837,399
Total ................................. 4,811,635
Sweden - 5.81%
AB Volvo, B Shares (A) ................. 29,000 923,082
Biacore International AB, ADR* ......... 15,000 129,375
Biora AB (A)* .......................... 40,000 512,788
Munters AB (A)* ........................ 72,000 747,420
Ortivus AB, B Shares (A)* .............. 23,600 817,610
Skandia Group Insurance
Company Ltd. (A) ...................... 30,000 1,954,850
Total ................................. 5,085,125
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Switzerland - 12.05%
AFG Arbonia-Forster Holding AG (A)* .... 625 414,124
Adecco SA, Bearer Shares (A) ........... 2,800 $ 990,094
Choco Lindt & Spru AG, Registered (A) .. 20 436,922
Credit Suisse Group, Registered
Shares (A) ............................ 17,000 3,401,561
Julius Baer Holding AG (A) ............. 340 825,297
Novartis, AG (A) ....................... 901 1,594,764
SWISS BANK CORPORATION, BASLE (A) ...... 3,500 1,233,025
Swisslog Holding AG (A)* ............... 11,750 1,202,519
TAG Heuer International SA (A)* ......... 3,830 435,941
Total ................................. 10,534,247
Thailand - 0.04%
Srithai Superware Public Company
Limited, F (A) ........................ 102,300 32,915
United Kingdom - 19.38%
AVIS Europe plc (A) .................... 250,000 1,010,677
COLT Telecom Group plc, ADR* ........... 24,200 2,272,525
Corporate Services Group plc (A) ....... 225,000 903,959
Freepages Group plc (A)* ............... 1,000,000 577,530
General Electric Company plc (A) ....... 200,000 1,583,603
JBA Holdings plc (A) .................... 44,000 447,092
Misys plc (A) .......................... 60,871 3,036,560
Newsquest plc (A)* ..................... 187,000 907,810
Orange plc (A)* ........................ 179,000 1,140,152
PizzaExpress plc (A) ................... 50,000 690,943
Rentokil Initial plc (A) ............... 164,000 999,997
Siebe plc (A) .......................... 62,400 1,361,082
Vodafone Group Plc (A) ................. 100,707 1,053,646
Williams plc (A) ....................... 120,500 964,207
Total ................................. 16,949,783
United States - 0.89%
ESG Re Limited ......................... 30,000 780,000
TOTAL COMMON STOCKS - 91.27% $79,826,739
(Cost: $60,002,135)
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1998
Shares Value
PREFERRED STOCKS
Austria - 0.27%
Bau Holding AG, Convertible (A) ........ 5,000 $ 237,839
Brazil - 1.04%
Telebras S.A., ADR, Convertible ........ 7,000 908,684
Germany - 3.14%
Marschollek, Lautenschlager und
Partner AG, Convertible (A) ........... 2,500 823,240
Moebel Walther AG, Convertible (A) ..... 30,000 900,292
Porsche AG, Convertible (A) ............ 450 1,017,087
Total ................................. 2,740,619
Portugal - 1.62%
Lusomundo-SGPS, S.A., Convertible (A) .. 100,000 1,419,559
TOTAL PREFERRED STOCKS - 6.07% $ 5,306,701
(Cost: $3,708,346)
Face
Amount in
Thousands
UNREALIZED GAIN ON OPEN FORWARD CURRENCY CONTRACTS - 0.34%
Deutsche Marks, 6-4-98 (B) ............. DM 2,036 87,969
Deutsche Marks, 7-29-98 (B) ............ DM 2,270 14,879
French Francs, 6-4-98 (B) .............. F 18,969 200,307
Total ................................. $ 303,155
TOTAL SHORT-TERM SECURITIES - 4.11% $ 3,592,501
(Cost: $3,592,501)
TOTAL INVESTMENT SECURITIES - 101.79% $89,029,096
(Cost: $67,302,982)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.79%) (1,568,700)
NET ASSETS - 100.00% $87,460,396
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
WADDELL & REED ASSET STRATEGY FUND
MANAGERS' LETTER
- -----------------------------------------------------------------
MARCH 31, 1998
Dear Shareholder:
This report relates to the operation of the Asset Strategy Fund for the
fiscal year ended March 31, 1998. The discussion, graphs and tables contained
in this report will provide you with information regarding the Fund's
performance during that period.
During most of 1997, the rapidly growing economy and tightening labor
market put upward pressure on interest rates. With the onset of the Asian
crisis in late 1997, it was expected that the Federal Reserve would ease
monetary policy in order to boost the Asian currencies and ameliorate the
crisis. Although the Federal Reserve took no such action, the expectations were
an important market dynamic during the year. The stock market continued its
strong upward trend as stronger than expected earnings reports were the norm.
Just prior to the start of the fiscal year, the equity weighting of the
Fund was raised from approximately 30% of total assets to 60% (the maximum
exposure allowed at that time). The change was made based on the expectation
that stocks, as an asset class, would outperform other asset categories during
1997. In late October, equity exposure was reduced and cash was increased to
reflect concerns regarding stock valuations and corporate profit growth in 1998.
On the fixed income side, we reduced the Fund's longer-term Treasury holdings
and replaced them with lower-rated domestic and foreign bonds with shorter
maturities and higher yields. We also invested in some bonds of issuers in
emerging markets. In July of 1997, the portfolio constraints were revised by
shareholders to allow up to 100% of the fund to be invested in either equities,
bonds or cash.
The strategies and techniques we applied resulted in the Fund's overall
performance remaining below that of the equity and mutual fund indexes charted
on the following page and above that of the fixed income indexes. Those indexes
reflect the performance of securities that generally represent the stock market
(the S&P 500 Index), one-month certificates of deposit (Salomon Brothers Short-
Term Index for 1 Month Certificates of Deposit), the bond market (the Salomon
Brothers Broad Investment Grade Bond Index) and the universe of portfolios with
similar investment objectives (the Lipper Flexible Portfolio Universe Average).
A variety of indexes is presented because the Fund invests in stocks, bonds and
other instruments. The Fund's performance was negatively impacted by the
decline in emerging market bond prices due to the Asian financial crisis.
As the next fiscal year begins, equity valuations remain high despite the
potential for lower corporate earnings due to slower economic growth in some
parts of the world, notably Asia. After expecting an easing of monetary policy
in the first quarter of 1998 due to the Asian crisis, the fixed income market
has grown somewhat less bullish recently. The expectation is now that Federal
Reserve policy will remain on hold for the near-term. For the moment, the Asian
crisis has stabilized and U.S. growth has continued strong. However, Japan will
continue to be a focal point for the markets. If the Japanese come up with
reasonable policies to spur economic growth, the global economic environment
would become more positive. Finally, attention is turning to Europe as over the
next several months it prepares for the initial stages of the move to a single
currency. At this point, we expect to maintain our equity exposure between 30%
and 60% of total assets. The Fund's fixed income strategy will be to emphasize
a mixture of shorter-duration, higher-yielding bonds with intermediate-term U.S.
Treasuries. This should provide greater income, but still allow participation
in occasional bond rallies within the expected trading range.
Thank you for your continued confidence.
Respectfully,
41
Michael L. Avery
Daniel J. Vrabac
Managers, Waddell & Reed Funds, Inc. Asset Strategy Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Asset Strategy Fund, Class B Shares,
The S&P 500 Index,
The Salomon Brothers Broad Investment Grade Debt Index,
The Salomon Brothers Short-Term Index for 1 Month Certificates of Deposit
and The Lipper All Flexible Portfolio Funds Universe Average
Salomon
Salomon BrothersLipper All
Asset BrothersShort-Term Flexible
Strategy Broad Index for Portfolio
Fund, Investment 1 month Funds
Class B S&P 500 GradeCertificatesUniverse
Shares IndexDebt Indexof Deposit Average
----------------------------------------------------------
04/30/95 Purchase10,000 10,000 10,000 10,000 10,000
03/31/96 10,300 12,832 10,936 10,541 11,318
03/31/97 10,212 15,366 11,473 11,122 12,443
03/31/98 12,758 23,901 12,848 11,760 16,018
==== Asset Strategy Fund, Class B Shares (1)(2) -- $12,758
++++ The S&P 500 Index (1) -- $23,901
-+-+-+ Salomon Brothers Broad Investment Grade Debt Index (1) -- $12,848
*--*-- Salomon Brothers Short-Term Index for 1 Month Certificates of
Deposit (1) -- $11,760
---- Lipper All Flexible Portfolio Funds Universe Average (1) --
$16,018
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of all the indexes
are not available, the investments were effected as of April 30, 1995.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return*
Class B** Class Y
-----------------------------
Year Ended
3/31/98 21.94% 26.06%
2+ Years Ended
3/31/98*** 8.32% N/A
Life of Class Y ****N/A 10.69%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 1% (2+ Years).
***4/20/95 (the initial offering date) through 3/31/98
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
ASSET STRATEGY FUND
Stocks 70% OBJECTIVE: To seek high total return
(can range from 0-100%) over the long term.
Bonds 25%
(can range from 0-100%) STRATEGY: Invests in stocks, bonds
and short-term
Short-Term Instruments 5% instruments, both in the
(can range from 0-100%) United States and abroad, which are
allocated in a mix that varies based on
the current outlook for the different
markets.
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Asset Strategy
Fund from time to time. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1995
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September and
December)
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year ended March 31, 1998
- ----------------------------------------
DIVIDENDS PAID $0.22
=====
CAPITAL GAINS DISTRIBUTION $0.46
=====
NET ASSET VALUE ON
3/31/98 $11.42 adjusted to: $11.88(A)
3/31/97 9.73
------
CHANGE PER SHARE $ 2.15
======
Past performance is not necessarily indicative of future results.
(A)This number includes the capital gains distribution of $0.46 paid in December
1997 added to the actual net asset value on March 31, 1998.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 21.94% 24.94%
Period from 4-20-95*
through 3-31-98 8.32% 8.61%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Asset Strategy Fund had net assets totaling $19,640,420
invested in a diversified portfolio of:
46.46% Common Stocks
18.71% Corporate Debt Securities
18.53% United States Government Securities
13.17% Cash and Cash Equivalents
3.13% Foreign Government Securities
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
March 31, 1998, your Fund owned:
$46.46Common Stocks
18.71Corporate Debt Securities
18.53United States Government Securities
13.17Cash and Cash Equivalents
3.13Foreign Government Securities
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Agricultural Production - Crops - 0.89%
Dole Food Company, Inc. ................ 3,600 $ 174,150
Apparel and Accessory Stores - 2.11%
Payless ShoeSource, Inc.* .............. 5,500 413,875
Business Services - 0.64%
BISYS Group, Inc. (The)* ............... 3,600 126,562
Chemicals and Allied Products - 6.89%
Astra AB A Free (A) .................... 12,700 262,085
Bristol-Myers Squibb Company ........... 1,800 187,762
Shire Pharmaceuticals Group plc, ADR* .. 12,800 272,794
Warner-Lambert Company ................. 3,700 630,155
Total ................................. 1,352,796
Communication - 4.36%
Clear Channel Communications, Inc.* .... 4,000 392,000
Cox Communications, Inc.* .............. 7,100 298,200
U S WEST Media Group* .................. 4,800 166,800
Total ................................. 857,000
Depository Institutions - 3.00%
BankAmerica Corporation ................ 3,200 264,400
U. S. Bancorp. ......................... 2,600 324,350
Total ................................. 588,750
Electric, Gas and Sanitary Services - 3.35%
Allied Waste Industries, Inc., New* .... 15,400 384,507
Duke Energy Corp. ...................... 4,600 273,985
Total ................................. 658,492
Electronic and Other Electric Equipment - 0.88%
Maytag Corporation ..................... 3,600 172,123
Engineering and Management Services - 0.97%
Paychex, Inc. .......................... 3,300 190,265
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Furniture and Home Furnishings Stores - 0.91%
Williams-Sonoma, Inc.* ................. 3,100 $ 179,413
General Merchandise Stores - 1.29%
Wal-Mart Stores, Inc. .................. 5,000 254,060
Health Services - 0.88%
Centennial HealthCare Corporation* ..... 6,900 172,500
Miscellaneous Retail - 1.58%
Costco Companies, Inc.* ................ 5,800 310,114
Nondepository Institutions - 1.71%
Fannie Mae ............................. 5,300 335,225
Oil and Gas Extraction - 3.25%
Anadarko Petroleum Corporation ......... 5,800 400,200
Tom Brown, Inc.* ....................... 10,600 237,832
Total ................................. 638,032
Personal Services - 1.74%
Equity Corporation International* ...... 14,300 342,299
Petroleum and Coal Products - 3.03%
British Petroleum Company p.l.c. (The), ADR 2,300 197,943
Royal Dutch Petroleum Company .......... 7,000 397,684
Total ................................. 595,627
Prepackaged Software - 7.58%
BMC Software, Inc.* .................... 4,300 360,258
Cerner Corporation* .................... 18,600 397,575
J. D. Edwards* ......................... 12,000 393,000
Networks Associates, Inc.* ............. 5,100 338,191
Total ................................. 1,489,024
Real Estate - 1.40%
ElderTrust* ............................ 15,400 275,752
TOTAL COMMON STOCKS - 46.46% $ 9,126,059
(Cost: $7,916,106)
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 1.52%
BOC Group, Inc. (The),
5.875%, 1-29-2001 ..................... $ 300 $ 297,570
Depository Institutions - 6.02%
Banco de Inversion y Comercio Exterior S.A.,
9.375%, 12-27-2000 (C) ................ 300 309,300
Banco Nacional de Comercio Exterior, S.N.C.,
7.5%, 7-1-2000 ........................ 300 300,375
Corporacion Andina de Fomento,
6.625%, 10-14-98 (C) .................. 275 274,656
Unibanco- Uniao de Bancos Brasileiros S.A.,
6.75%, 10-8-98 ........................ 300 298,125
Total ................................. 1,182,456
Electric, Gas and Sanitary Services - 5.85%
Companhia Energetica de Minas Gerais- CEMIG,
9.125%, 11-18-2004 (C) ................ 300 297,750
Centrais Electricas Brasileiras S.A.,
10.0%, 10-30-98 (C) ................... 300 304,125
Companhia Paranaense de Energia-COPEL,
9.75%, 5-2-2005 (C) ................... 300 295,500
Transportadora de Gas del Sur S.A. (TGS),
7.75%, 12-23-98 ....................... 250 251,250
Total ................................. 1,148,625
Food and Kindred Products - 1.43%
Cervejarias Kaiser S.A.,
8.875%, 9-26-2005 (C) ................. 300 281,625
Industrial Machinery and Equipment - 1.54%
Tyco International Ltd.,
6.5%, 11-1-2001 ....................... 300 302,766
Oil and Gas Extraction - 2.35%
Perez Companc S.A.,
8.375%, 7-30-98 (C) ................... 160 161,000
Petroleos Mexicanos,
8.375%, 3-30-2005 (C) ................. 300 300,000
Total ................................. 461,000
TOTAL CORPORATE DEBT SECURITIES - 18.71% $ 3,674,042
(Cost: $3,677,071)
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES - 3.13%
Argentina
Republic of Argentina (The):
8.325%, 8-15-99 ....................... $ 300 $ 303,150
9.25%, 2-23-2001....................... 300 311,250
Total ................................. $ 614,400
(Cost: $603,935)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.38%, 4-29-2003 ...................... 300 297,609
6.57%, 2-11-2005 ...................... 300 297,843
6.75%, 2-5-2008 ....................... 300 298,968
6.75%, 2-12-2008 ...................... 300 298,548
6.785%, 3-3-2008 ...................... 300 296,577
Federal Home Loan Mortgage Corporation,
6.5%, 2-15-2023 ....................... 2,800 525,252
United States Treasury:
7.125%, 2-29-2000 ..................... 60 61,640
5.625%, 12-31-2002 .................... 1,500 1,497,420
7.5%, 2-15-2005 ....................... 60 65,972
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 18.53% $ 3,639,829
(Cost: $3,698,326)
SHORT-TERM SECURITIES
Commercial Paper
Electric, Gas and Sanitary Services - 5.07%
Pacificorp,
5.57%, 5-7-98 ......................... 1,000 994,430
Fabricated Metal Products - 4.25%
Danaher Corporation,
5.6875%, Master Note .................. 835 835,000
Food and Kindred Products - 2.06%
General Mills, Inc.,
5.5425%, Master Note .................. 405 405,000
Textile Mill Products - 4.58%
Sara Lee Corporation,
5.5375%, Master Note .................. 900 900,000
TOTAL SHORT-TERM SECURITIES - 15.96% $ 3,134,430
(Cost: $3,134,430)
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1998
Value
TOTAL INVESTMENT SECURITIES - 102.79% $20,188,760
(Cost: $19,029,868)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (2.79%) (548,340)
NET ASSETS - 100.00% $19,640,420
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
WADDELL & REED LIMITED-TERM BOND FUND
MANAGER'S LETTER
MARCH 31, 1998
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Limited-Term Bond Fund for the
fiscal year ended March 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the past fiscal year, the economy entered its seventh year of
expansion, the unemployment rate went to a twenty-four year low and inflation
declined further. There were numerous factors which helped restrain inflation,
including business productivity improvement, trade becoming a more important
component of growth, restrictive domestic and global economic policies and
increased competition brought on by excess capacity worldwide and a strong U.S.
Dollar. One of the major fears for the bond market last year was that the low
unemployment levels could lead to wage pressures and eventually price increases.
Accelerating gains in productivity growth offset compensation increases, causing
this pessimistic view not to materialize.
Our investment strategy was to maintain a longer average duration in our
portfolio than our benchmark index to take advantage of the rising bond prices
that resulted from lower interest rates. We also maintained an overweight
position in mortgage-backed securities and corporate bonds in order to increase
yield.
The strategies and techniques we applied resulted in the Fund's performance
remaining modestly below that of the indexes charted on the following page.
Those indexes generally represent the limited-term sector of the bond market
(the Salomon Brothers 1-5 Years Treasury/Government Sponsored/Corporate Index)
and the universe of funds with similar investment objectives (the Lipper Short-
Intermediate Investment Grade Debt Fund Universe Average).
Economic growth is expected to slow in 1998, due in large part to the
continuing financial crisis in Asia. The full effects of the currency
devaluation have yet to be seen, but it is expected to dampen U.S. export
growth. In addition, lower priced imports from the area should restrain
inflationary pressures. The continuing sharp drop in the prices of most
commodities is fully consistent with slowing global growth and downward
pressures on inflation. If these trends and the turmoil in Asia continue, the
Federal Reserve is unlikely to raise interest rates in the near future. This
would be positive for the fixed income markets. We expect to continue our
strategy of seeking relative value opportunities in securities offering superior
yield characteristics. In the near term we will maintain a neutral duration
with the intention of lengthening maturity as conditions warrant.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
W. Patrick Sterner
Manager, Waddell & Reed Funds, Inc. Limited-Term Bond Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Limited-Term Bond Fund, Class B Shares,
The Salomon Brothers 1-5 Years Treasury/Government Sponsored/Corporate Index
and The Lipper Short-Intermediate Investment Grade Debt Fund Universe Average
Salomon
Brothers Lipper Short-
Limited- 1-5 Years Intermediate
Term Treasury/ Investment
Bond Government Grade Debt
Fund, Sponsored/ Fund
Class B Corporate Universe
Shares Index Average
--------- ---------- --------------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,206 10,295 10,277
03/31/94 10,350 10,573 10,549
03/31/95 10,632 11,033 10,954
03/31/96 11,419 11,983 11,920
03/31/97 11,821 12,601 12,468
03/31/98 12,666 13,655 13,495
===== Limited-Term Bond Fund, Class B Shares (1) (2) -- $12,666
***** Salomon Brothers 1-5 Years Treasury/ Government Sponsored/ Corporate Index
(1) -- $13,655
- ----- Lipper Short-Intermediate Investment Grade Debt Fund Universe Average (1)
- -- $13,495
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return *
Class B** Class Y
-----------------------------
Year Ended
3/31/98 4.15% 7.91%
5 Years Ended
3/31/98 4.41% N/A
5+ Years Ended
3/31/98*** 4.43% N/A
Life of Class Y ****N/A 5.31%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (5 Years and 5+ Years).
***9/21/92(the initial offering date) through 3/31/98
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
LIMITED-TERM BOND FUND
PORTFOLIO STRATEGY:
OBJECTIVE: High level of current income
Dollar-weighted average consistent with
maturity of portfolio is preservation of capital.
between two and five years.
At least 65% investment-grade
bonds.
STRATEGY: Invests primarily in debt securities of
investment grade, including debt
securities issued or guaranteed by the
U.S. Government or its agencies or
instrumentalities, with the portfolio
having a dollar-weighted average
maturity of not less than two years, but
not more than five years.
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- ----------------------------------------
DIVIDENDS PAID $0.46
=====
NET ASSET VALUE ON
3/31/98 $10.14
3/31/97 9.90
------
CHANGE PER SHARE $ 0.24
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 4.15% 7.15%
5-year period ended 3-31-98 4.41% 4.41%
Period from 9-21-92*
through 3-31-98 4.43% 4.43%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Limited-Term Bond Fund had net assets totaling $18,332,440
invested in a diversified portfolio of:
94.24% Bonds
5.76% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 1998, your Fund owned:
$55.71Corporate Bonds
36.39U.S. Government Securities
5.76Cash and Cash Equivalents
2.14Municipal Bond
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 2.79%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... $500 $ 512,245
Depository Institutions - 6.54%
Ahmanson (H. F.),
6.35%, 9-1-98 ......................... 600 600,798
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 558 598,807
Total ................................. 1,199,605
Electric, Gas and Sanitary Services - 6.58%
UtiliCorp United,
6.875%, 10-1-2004 ..................... 500 507,350
WMX Technologies, Inc.:
8.25%, 11-15-99 ....................... 480 494,784
7.0%, 5-15-2005 ....................... 200 203,174
Total ................................. 1,205,308
Electronic and Other Electric Equipment - 2.85%
Black & Decker Corp.,
7.5%, 4-1-2003 ........................ 500 521,625
General Merchandise Stores - 2.78%
Sears, Roebuck and Co.,
8.2%, 4-15-99 ......................... 500 510,425
Industrial Machinery and Equipment - 2.81%
Tenneco Inc.,
8.2%, 11-15-99 ........................ 500 514,605
Instruments and Related Products - 3.96%
Baxter International Inc.,
8.125%, 11-15-2001 .................... 350 371,045
Polaroid Corporation,
8.0%, 3-15-99 ......................... 350 355,663
Total ................................. 726,708
Nondepository Institutions - 8.41%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ 500 517,785
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 500 517,215
General Motors Acceptance Corporation,
7.75%, 1-15-99 ........................ 500 506,560
Total ................................. 1,541,560
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Personal Services - 2.74%
Service Corporation International,
6.375%, 10-1-2000...................... $500 $ 501,585
Petroleum and Coal Products - 2.79%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 478 511,783
Railroad Transportation - 2.87%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 500 525,265
Security and Commodity Brokers - 2.81%
Salomon Inc.,
7.75%, 5-15-2000....................... 500 515,770
Textile Mill Products - 2.74%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 500 501,850
Transportation by Air - 2.77%
Federal Express Corporation,
10.0%, 9-1-98 ......................... 500 508,600
Wholesale Trade - Durable Goods - 2.27%
Westinghouse Electric Corporation,
8.875%, 6-1-2001 ...................... 400 416,784
TOTAL CORPORATE DEBT SECURITIES - 55.71% $10,213,718
(Cost: $10,093,845)
MUNICIPAL BOND - 2.14%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.),
7.25%, 11-15-2002 ..................... 375 $ 391,406
(Cost: $375,000)
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation,
6.4%, 2-15-2018 ....................... $250 $ 251,093
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 288 285,817
7.27%, 4-24-2003 ...................... 500 500,705
7.95%, 3-7-2005 ....................... 500 518,205
7.15%, 9-21-2005 ...................... 500 501,640
7.5%, 11-15-2006 ...................... 500 509,610
8.0%, 2-1-2008 ........................ 177 182,769
6.5%, 12-1-2010 ....................... 595 596,059
6.0%, 1-1-2011 ........................ 485 477,524
6.5%, 2-1-2011 ........................ 502 503,169
7.0%, 5-1-2011 ........................ 401 407,387
7.0%, 7-1-2011 ........................ 420 426,948
7.0%, 9-1-2012 ........................ 470 477,788
7.0%, 9-25-2020 ....................... 19 19,403
7.0%, 4-1-2026 ........................ 450 454,153
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 195 195,978
7.0%, 7-15-2010 ....................... 356 363,743
TOTAL UNITED STATES GOVERNMENT SECURITIES - 36.39% $ 6,671,991
(Cost: $6,625,374)
TOTAL SHORT-TERM SECURITIES - 4.98% $ 912,000
(Cost: $912,000)
TOTAL INVESTMENT SECURITIES - 99.22% $18,189,115
(Cost: $18,006,219)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.78% 143,325
NET ASSETS - 100.00% $18,332,440
See Notes to Schedules of Investments on pages 76 - 79.
<PAGE>
WADDELL & REED HIGH INCOME FUND
MANAGER'S LETTER
MARCH 31, 1998
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the High Income Fund for the fiscal
year ended March 31, 1998. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
Because the public offering of shares of the Fund began on July 31, 1997,
performance data will reflect activity of the Fund for less than a full year.
The past fiscal year was a very busy one in the high-yield market.
Enormous demand for high-yield bonds provided the capital to absorb the record
issuance of such securities. The spread between high-yield bonds and Treasuries
reached all-time lows during the year, but widened back out during the October
selloff in the equity markets. One ongoing trend that gained steam during the
past year was industry consolidation, resulting in substantial merger and
acquisition activity. Another trend was further deregulation of the telephone
industry which led to the creation of many new telephone companies and large
demand for capital to finance the new infrastructures. This industry now
accounts for twelve percent of the Salomon Brothers High Yield Composite Index,
accounted for nineteen percent of new issues in 1997 and was the best performing
sector for the last twelve months.
The investment strategies employed during the past year were to become
fully invested. This objective was achieved by participating in the new issue
calendar. Fund assets have been invested approximately 90% in bonds, 7% in
equities, 1.5% in convertible securities and 1.5% in cash. The Fund's
overweight holdings in the telecommunications sector contributed to the Fund's
performance. Also benefiting performance were the Fund's equity positions,
which totaled 7.5% of the Fund's assets.
The strategies and techniques we applied resulted in the performance of the
Fund exceeding that of the Salomon Brothers High Yield Composite Index and the
Lipper High Current Yield Fund Universe Average, both as charted on the
following page. The Salomon Brothers Index reflects the performance of
securities that generally represent the high-yield bond market. The Lipper
Index reflects the performance of the universe of funds with similar investment
objectives as the Fund.
Our current outlook for the next fiscal year is a bit cautious. Cash flows
into the high-yield market are not expected to be as robust as last year and
some credit quality concerns are developing. Events in Asia and Japan could
lead to some rise in default rates. Strategies for the coming year therefore
include stressing credit quality and concentrating the Fund's holdings on less
cyclically exposed areas.
Thank you very much for your continued support and confidence.
Respectfully,
Louise D. Rieke
Manager, Waddell & Reed Funds, Inc. High Income Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
High Income Fund, Class B Shares,
The Salomon Brothers High Yield Composite Index
and The Lipper High Current Yield Fund Universe Average
Salomon Lipper
Brothers High
High Current
High Income Yield Yield Fund
Fund, Class Composite Universe
B Shares Index Average
----------- ------ ---------
07/31/97 Purchase $10,000 $10,000 $10,000
09/30/97 10,172 10,197 10,272
12/31/97 10,463 10,496 10,406
03/31/98 11,177 10,929 10,837
+++++ High Income Fund, Class B Shares(1) -- $11,177
..... The Salomon Brothers High Yield Composite Index -- $10,929
- ----- The Lipper High Current Yield Fund Universe Average -- $10,837
(1) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Aggregate Total Return
Class B*
----------------------
For the Period
Ended
3/31/98** 8.77%
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of the period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC applied for the
period shown is 3%.
**7/31/97 (the initial offering date) through 3/31/98
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
HIGH INCOME FUND
PORTFOLIO STRATEGY:
Invests generally in OBJECTIVE: High level of current
High-Risk, High-Yield income, by investing
Fixed Income Securities primarily in a
diversified portfolio of
Maximum 20% Common Stock high-yield, high-risk fixed income
securities, with a secondary objective
of capital growth when consistent with
the primary objective.
STRATEGY: Invests generally in debt securities in
lower rating categories as classified by
recognized rating agencies; may also
invest up to 20% in common stocks.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class B Shares
PER SHARE DATA
For the Period Ended March 31, 1998
- ---------------------------------------
DIVIDENDS PAID $ 0.37
======
NET ASSET VALUE ON
3/31/98 $10.79
7/31/97* 10.00
------
CHANGE PER SHARE $ 0.79
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Aggregate Total Return
---------------------------
With Without
Period CDSC** CDSC***
- ------ ----------- ------------
Period from 7-31-97*
through 3-31-98 8.77% 11.77%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, High Income Fund had net assets totaling $11,811,867 invested
in a diversified portfolio of:
89.61% Corporate Debt Securities
6.96% Common Stocks
3.43% Cash and Cash Equivalents
As a shareholder of High Income Fund, for every $100 you had invested on March
31, 1998, your Fund owned:
$31.38 Manufacturing Bonds
24.66 Transportation, Communication, Electric
and Sanitary Services Bonds
16.94 Services Bonds
11.19 Wholesale and Retail Trade Bonds
6.96 Common Stocks
3.43 Cash and Cash Equivalents
2.87 Agriculture, Forestry and Fisheries Bonds
1.69 Mining Bonds
0.88 Finance, Insurance and Real Estate Bonds
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Shares Value
COMMON STOCKS
Food and Kindred Products - 1.02%
Keebler Foods Company* ............... 4,000 $ 120,000
Instruments and Related Products - 4.86%
Maxxim Medical, Inc.* .................. 20,000 573,740
Miscellaneous Retail - 1.08%
Duane Reade Holding Corp.* ............. 5,000 127,810
TOTAL COMMON STOCKS - 6.96% $ 821,550
(Cost: $658,500)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 1.54%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 (C) ................ $100 99,500
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 75 82,500
Total ............................... 182,000
Apparel and Other Textile Products - 2.21%
Pillowtex Corporation,
9.0%, 12-15-2007 (C) ................ 250 260,625
Amusement and Recreation Services - 4.05%
Premier Parks Inc.,
0.0%, 4-1-2008 (D) .................. 750 479,063
Auto Repair, Services and Parking - 5.26%
APCOA, Inc.,
9.25%, 3-15-2008 (C) ................ 250 253,125
Diamond Triumph Auto Glass, Inc.,
9.25%, 4-1-2008 (C) ................. 100 101,625
Safelite Glass Corp.,
9.875%, 12-15-2006 (C) .............. 250 266,875
Total ............................... 621,625
Business Services - 0.66%
Lamar Advertising Company,
9.625%, 12-1-2006 ................... 25 27,250
UNICCO Service Company,
9.875%, 10-15-2007 .................. 50 51,125
Total ............................... 78,375
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Chemicals and Allied Products - 3.01%
Carson, Inc.,
10.375%, 11-1-2007 .................. $100 $ 103,000
Chattem, Inc.,
8.875%, 4-1-2008 (C) ................ 100 101,500
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 50 52,000
UCC Investors Holding, Inc.,
0.0%, 5-1-2005 (D) .................. 100 99,000
Total ............................... 355,500
Coal Mining - 0.42%
Anker Coal Group, Inc.,
9.75%, 10-1-2007 .................... 50 49,250
Communication - 23.98%
ACME Television, LLC,
0.0%, 9-30-2004 (C)(D) .............. 100 82,250
Concentric Network Corporation, Units,
12.75%, 12-15-2007 (C)(E) ........... 250 287,500
Crown Castle International Corp.,
0.0%, 11-15-2007 (C)(D) ............. 200 134,500
Hyperion Telecommunications, Inc.,
0.0%, 4-15-2003 (D) ................. 250 191,875
ITC ^ DeltaCom, Inc.,
8.875%, 3-1-2008 (C) ................ 100 103,500
Intermedia Communications Inc.,
8.5%, 1-15-2008 (C) ................. 250 262,500
Iridium LLC:
11.25%, 7-15-2005 (C) ............... 100 106,000
13.0%, 7-15-2005 .................... 100 112,000
LIN Holdings Corp.,
0.0%, 3-1-2008 (C)(D) ............... 250 157,500
LIN Television Corporation,
8.375%, 3-1-2008 (C) ................ 100 100,750
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (D) .................. 100 74,250
Nextel Communications, Inc.:
0.0%, 8-15-2004 (D) ................. 25 24,062
0.0%, 2-15-2008 (C)(D) .............. 100 63,875
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 100 106,000
Qwest Communications International Inc.,
0.0%, 10-15-2007 (D) ................ 250 183,750
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... $ 75 $ 78,375
Satelites Mexicanos, S.A. de C.V.,
10.125%, 11-1-2004 (C) .............. 250 257,500
Sinclair Broadcast Group,
10.0%, 9-30-2005 .................... 25 27,063
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (D) ................. 100 83,000
WinStar Communications, Inc.:
0.0%, 10-15-2005 Convertible (C)(D) . 100 142,000
10.0%, 3-15-2008 (C) ................ 250 253,750
Total ............................... 2,832,000
Eating and Drinking Places - 0.22%
SC International Services, Inc.,
9.25%, 9-1-2007 ..................... 25 26,219
Electric, Gas and Sanitary Services - 0.23%
Allied Waste North America, Inc.,
10.25%, 12-1-2006 ................... 25 27,750
Electronic and Other Electric Equipment - 7.07%
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 50 52,125
Elgar Holdings, Inc.,
9.875%, 2-1-2008 (C) ................ 250 255,000
Omnipoint Corporation,
11.625%, 8-15-2006 .................. 250 275,000
Phase Metrics, Inc.,
10.75%, 2-1-2005 (C) ................ 250 253,437
Total ............................... 835,562
Fabricated Metal Products - 0.89%
Safety Components International, Inc.,
10.125%, 7-15-2007 .................. 100 104,625
Food and Kindred Products - 0.45%
Southern Foods Group, L.P.,
9.875%, 9-1-2007 (C) ................ 50 53,063
Forestry - 1.33%
U.S. Timberlands Company, L.P.,
9.625%, 11-15-2007 .................. 150 157,125
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Health Services - 0.87%
Paragon Health Network, Inc.,
9.5%, 11-1-2007 ..................... $100 $ 102,250
Hotels and Other Lodging Places - 2.26%
Boyd Gaming Corporation,
9.25%, 10-1-2003 .................... 250 266,875
Industrial Machinery and Equipment - 3.93%
Columbus McKinnon Corporation,
8.5%, 4-1-2008 (C) .................. 100 100,750
National Equipment Services, Inc.,
10.0%, 11-30-2004 (C) ............... 250 265,000
Walbro Corporation,
9.875%, 7-15-2005 ................... 100 98,000
Total ............................... 463,750
Miscellaneous Manufacturing Industries - 0.89%
Amscan Holdings Inc.,
9.875%, 12-15-2007 (C) .............. 100 104,750
Miscellaneous Retail - 2.77%
Big 5 Corp.,
10.875%, 11-15-2007 ................. 100 102,750
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 200 224,000
Total ............................... 326,750
Motion Pictures - 3.84%
AMC Entertainment, Inc.,
9.5%, 3-15-2009 ..................... 100 105,500
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 (C)................ 250 272,500
Regal Cinemas, Inc.,
8.5%, 10-1-2007 ..................... 75 76,125
Total ............................... 454,125
Oil and Gas Extraction - 1.27%
Coho Energy, Inc.,
8.875%, 10-15-2007 .................. 50 47,000
Cross Timbers Oil,
8.75%, 11-1-2009 .................... 100 102,500
Total ............................... 149,500
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Paper and Allied Products - 1.83%
Huntsman Packaging Corporation,
9.125%, 10-1-2007 (C) ............... $ 75 $ 76,594
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (C)(D) .............. 250 140,000
Total ............................... 216,594
Primary Metal Industries - 2.83%
Weirton Steel Corporation:
11.375%, 7-1-2004 ................... 50 54,000
10.75%, 6-1-2005 .................... 25 26,594
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 (C) ............... 250 253,750
Total ............................... 334,344
Printing and Publishing - 3.12%
Perry-Judd's Incorporated,
10.625%, 12-15-2007 (C) ............. 250 263,125
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 (C) .............. 100 105,750
Total ............................... 368,875
Real Estate - 0.88%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 100 104,000
Stone, Clay and Glass Products - 2.14%
SIMCALA, Inc.,
9.625%, 4-15-2006 (C) ............... 250 253,125
Textile Mill Products - 2.81%
Delta Mills, Inc.,
9.625%, 9-1-2007 (C) ................ 75 78,187
Galey & Lord, Inc.,
9.125%, 3-1-2008 (C) ................ 250 253,750
Total ............................... 331,937
Transportation Equipment - 0.20%
Aetna Industries, Inc.,
11.875%, 10-1-2006 .................. 25 24,000
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Trucking and Warehousing - 0.45%
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... $ 50 $ 52,687
Wholesale Trade - Durable Goods - 3.08%
Aviation Sales Company,
8.125%, 2-15-2008 (C) ............... 100 98,500
Sealy Mattress Company,
9.875%, 12-15-2007 (C) .............. 250 265,000
Total ............................... 363,500
Wholesale Trade - Nondurable Goods - 5.12%
Color Spot Nurseries Inc.,
10.5%, 12-15-2007 ................... 250 250,312
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 (C)................. 250 250,000
Richmont Marketing Specialists Inc.,
10.125%, 12-15-2007 (C) ............. 100 104,250
Total ............................... 604,562
TOTAL CORPORATE DEBT SECURITIES - 89.61% $10,584,406
(Cost: $10,241,542)
TOTAL SHORT-TERM SECURITIES - 4.57% $ 540,000
(Cost: $540,000)
TOTAL INVESTMENT SECURITIES - 101.14% $11,945,956
(Cost: $11,440,042)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.14%) (134,089)
NET ASSETS - 100.00% $11,811,867
See Notes to Schedule of Investments on pages 76-79.
<PAGE>
WADDELL & REED MUNICIPAL BOND FUND
MANAGER'S LETTER
MARCH 31, 1998
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Municipal Bond Fund for the
fiscal year ended March 31, 1998. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the past fiscal year, we experienced a continuation of the favorable
economic environment that has prevailed for over seven years. Steady growth,
low and declining inflation and a strong currency have made the U.S. a safe
haven for investors from all over the world and gradually lowered our interest
rates. Lower interest rates have increased bond prices and improved total
return.
To take advantage of rising bond prices, we continued to keep the Fund
fully invested in intermediate and longer-term bonds. We also emphasized yield,
which means we maintained a large percentage of the Fund invested in medium
quality bonds.
The strategies and techniques we applied resulted in the Fund's performance
for the fiscal year slightly exceeding that of the indexes charted on the
following page. Those indexes reflect the performance of securities that
generally represent the municipal bond market (the Lehman Brothers Municipal
Debt Index) and the universe of funds with similar investment objectives (the
Lipper General Municipal Debt Fund Universe Average).
Recent economic indicators signal a potential slowdown in U.S. economic
activity, with stable inflation and a neutral Federal Reserve policy. If this
slowdown develops, it suggests long-term interest rates could gradually trend
lower. In light of these conditions, we will continue to maintain a fully
invested position in intermediate and longer maturity medium grade bonds trying
to increase value by seeking higher yields and good call protection.
Thank you for your continued support and confidence in our organization.
Respectfully,
John M. Holliday
Manager, Waddell & Reed Funds, Inc. Municipal Bond Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
Municipal Bond Fund, Class B Shares,
The Lehman Brothers Municipal Debt Index
and The Lipper General Municipal Debt Fund Universe Average
Lipper
Municipal Lehman General
Bond Brothers Municipal
Fund, Municipal Debt Fund
Class B Debt Universe
Shares Index Average
--------- --------- ----------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 10,700 10,560 10,576
03/31/94 10,782 10,805 10,759
03/31/95 11,469 11,608 11,432
03/31/96 12,327 12,581 12,242
03/31/97 12,983 13,269 12,831
03/31/98 14,397 14,677 14,181
===== Municipal Bond Fund, Class B Shares (1) (2)-- $14,397
+++++ Lehman Brothers Municipal Debt Index (1) -- $14,677
- ----- Lipper General Municipal Debt Fund Universe Average (1) -- $14,181
Past performance is not predictive of future performance. Indexes are
unmanaged.
(1) Because the Fund commenced operations on a date other than at the end of a
month, and partial month calculations of the performance of both the
indexes are not available, the investments were effected as of September
30, 1992.
(2) The value of the investment in the Fund is impacted by the ongoing expenses
of the Fund.
Average Annual Total Return
Class B*
-----------------------------
Year Ended
3/31/98 7.89%
5 Years Ended
3/31/98 6.11%
5+ Years Ended
3/31/98** 6.88%
*Performance data quoted represents past performance. Investment return and
principal value will fluctuate and an investor's shares, when redeemed, may
be worth more or less than their original cost. The returns shown reflect
the payment of the applicable contingent deferred sales charge (CDSC), as
described in the Prospectus, upon total redemption assumed to have occurred
at the end of each period. The maximum CDSC is 3%, declining to zero at the
end of the third calendar year after investment. The CDSC's applied for the
periods shown are 3% (1 Year) and 0% (5 Years and 5+ Years).
**9/21/92 (the initial offering date) through 3/31/98
<PAGE>
SHAREHOLDER SUMMARY
- -----------------------------------------------------------------
MUNICIPAL BOND FUND
PORTFOLIO STRATEGY:
Minimum 80% OBJECTIVE: Income which is not subject
Municipal Bonds. to Federal income taxation.
(Income may be subject to state
Maximum 5% non-investment and local taxes, and a portion
grade debt securities. may be subject to Federal taxes,
including alternative minimum
Less than 25% of its assets tax.)
in securities of issuers
located in any single state.
STRATEGY: Invests in municipal bonds (debt
securities the interest on which is
generally exempt from Federal income
tax).
FOUNDED: 1992
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY - Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- -------------------------------------------
DIVIDENDS PAID $0.44
=====
NET ASSET VALUE ON
3/31/98 $11.45
3/31/97 10.74
------
CHANGE PER SHARE $0.71
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual
Total Return
----------------
With Without
CDSC** CDSC***
------ -------
Period
- ------
1-year period ended 3-31-98 7.89% 10.89%
5-year period ended 3-31-98 6.11% 6.11%
Period from 9-21-92*
through 3-31-98 6.88% 6.88%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, Municipal Bond Fund had net assets totaling $40,022,573
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 1998, your Fund owned:
$21.24Hospital Revenue Bonds
17.82Industrial Revenue Bonds
12.03Lifecare Centers Revenue Bonds
10.19Other Municipal Bonds and Cash and Cash Equivalents
7.97Housing Revenue Bonds
7.61Transportation Revenue Bonds
5.96Electric Utility Revenue Bonds
5.16Special Tax Bonds
4.68Public Power Revenue Bonds
2.69Airport Revenue Bonds
2.35Education Revenue Bonds
2.30Resource Recovery Revenue Bonds
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALASKA - 2.57%
City of Valdez, Alaska, Marine
Terminal Revenue Refunding Bonds
(BP Pipelines (Alaska) Inc. Project),
Series 1993A,
5.85%, 8-1-2025 ....................... $1,000 $ 1,030,000
ARIZONA - 0.71%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ 270 283,837
ARKANSAS - 1.07%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 426,000
CALIFORNIA - 3.81%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (D) .................... 2,000 1,525,000
COLORADO - 5.10%
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), Series 1997,
5.6%, 12-1-2027 ....................... 1,000 1,028,750
Colorado Health Facilities Authority, Hospital
Revenue Bonds (Steamboat Springs Health Care
Association Project), Series 1997,
5.75%, 9-15-2022 ...................... 1,000 1,013,750
Total ................................. 2,042,500
CONNECTICUT - 4.63%
Connecticut Development Authority, Water
Facilities Revenue Bonds (Bridgeport
Hydraulic Company Project):
1995 Series,
6.15%, 4-1-2035 ....................... 1,000 1,066,250
1996 Series,
6.0%, 9-1-2036 ........................ 750 785,625
Total ................................. 1,851,875
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
DISTRICT OF COLUMBIA - 1.82%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... $ 710 $ 729,525
GUAM - 0.66%
Guam Power Authority, Revenue Bonds,
1992 Series A,
6.3%, 10-1-2022 ....................... 250 265,000
INDIANA - 8.26%
City of Sullivan, Indiana, Pollution
Control Revenue Refunding Bonds
(Indiana Michigan Power Company Project),
Series C,
5.95%, 5-1-2009 ....................... 1,500 1,567,500
Hospital Authority of La Porte County,
Hospital Refunding Revenue Bonds,
Series 1993 (La Porte Hospital, Inc.),
6.25%, 3-1-2012 ....................... 1,250 1,331,250
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 408,000
Total ................................. 3,306,750
IOWA - 0.89%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 354,025
LOUISIANA - 0.55%
Parish of St. Charles, State of Louisiana,
Pollution Control Revenue Bonds (Union
Carbide Project), Series 1992,
7.35%, 11-1-2022 ...................... 200 221,750
MARYLAND - 7.29%
Prince George's County, Maryland,
Project and Refunding Revenue Bonds
(Dimensions Health Corporation Issue),
Series 1994,
5.375%, 7-1-2014 ...................... 1,000 1,012,500
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MARYLAND (Continued)
Northeast Maryland Waste Disposal
Authority, Solid Waste Revenue Bonds
(Montgomery County Resource Recovery
Project), Series 1993A,
6.2%, 7-1-2010 ........................ $ 665 $ 704,069
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-2022 ..................... 650 686,562
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-2013 ....................... 500 513,750
Total ................................. 2,916,881
MICHIGAN - 7.42%
Michigan State Hospital Finance
Authority, Hospital Revenue Refunding
Bonds (Crittenton Hospital),
Series 1994A,
5.25%, 3-1-2014 ....................... 1,000 1,006,250
City of Flint Hospital Building Authority,
Revenue Rental Bonds, Series 1998B (Hurley
Medical Center),
5.375%, 7-1-2018 ...................... 1,000 985,000
Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Porter Hills Presbyterian
Village, Inc. Project), Series 1998,
5.375%, 7-1-2028 ...................... 1,000 980,000
Total ................................. 2,971,250
MISSOURI - 1.90%
City of Fenton, Missouri, Public Facilities
Authority, Leasehold Revenue Bonds,
Series 1997 (City of Fenton, Missouri, Lessee),
5.25%, 1-1-2018 ....................... 500 489,375
City of Ste. Genevieve, Missouri, Waterworks
Revenue Bonds, Series 1993,
6.6%, 2-1-2013 ........................ 250 271,563
Total ................................. 760,938
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MONTANA - 4.02%
Montana Health Facility Authority, Health Care
Revenue Bonds, Series 1996 (Community Medical
Center, Inc.),
6.375%, 6-1-2018 ...................... $1,500 $ 1,610,625
NEBRASKA - 1.34%
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-SA,
6.2%, 6-1-2013 ........................ 500 534,375
NEVADA - 2.53%
West Wendover Recreation District, Elko
County, Nevada, General Obligation
(Limited Tax), Recreational Facilities
and Refunding Bonds, Series 1996,
6.25%, 12-1-2021 ...................... 950 1,011,750
NEW JERSEY - 4.06%
New Jersey Economic Development Authority,
Economic Development Refunding Bonds (Preston
Trucking Company, Inc. - 1996 Project),
6.5%, 9-1-2014 ........................ 1,500 1,623,750
NEW MEXICO - 5.16%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B,
0.0%, 7-1-2013 ........................ 4,500 2,064,375
NEW YORK - 7.02%
New York State Thruway Authority,
Local Highway and Bridge Service
Contract Bonds, Series 1995,
6.25%, 4-1-2014 ....................... 1,400 1,519,000
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 1,075,000
Onondaga County Resource Recovery Agency,
Project Revenue Bonds (Resource Recovery
Facility - 1992 Series),
7.0%, 5-1-2015 ........................ 200 216,750
Total ................................. 2,810,750
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OHIO - 2.23%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... $ 750 $ 893,438
OKLAHOMA - 4.71%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-2026 ....................... 1,000 1,117,500
Tulsa Public Facilities Authority (Oklahoma):
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-2012 ....................... 500 530,625
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-2014 ........................ 200 236,000
Total ................................. 1,884,125
PENNSYLVANIA - 4.51%
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 1,804,687
TENNESSEE - 7.71%
The Health and Educational Facilities Board
of the Metropolitan Government of Nashville
and Davidson County, Tennessee, Multi-Modal
Interchangeable Rate Health Facility Revenue
Bonds (Richland Place, Inc. Project),
Series 1993,
5.5%, 5-1-2023 ........................ 2,000 2,030,000
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,056,250
Total ................................. 3,086,250
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1998
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
TEXAS - 7.30%
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 $1,087,500
Texas Department of Housing and Community
Affairs, Single Family Mortgage Revenue
Bonds, Series D (AMT) TEAMS Structure,
5.7%, 9-1-2029 ........................ 1,000 1,015,000
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 819,000
Total ................................. 2,921,500
WASHINGTON - 4.02%
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 1,606,875
TOTAL MUNICIPAL BONDS - 101.29% $40,537,831
(Cost: $37,976,668)
TOTAL SHORT-TERM SECURITIES - 0.68% $ 274,000
(Cost: $274,000)
TOTAL INVESTMENT SECURITIES - 101.97% $40,811,831
(Cost: $38,250,668)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.97%) (789,258)
NET ASSETS - 100.00% $40,022,573
See Notes to Schedules of Investments on pages 76-79.
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 1998
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) Face amounts are denominated in the indicated foreign currency where
applicable (F - French Franc, DM - Deutsche Mark).
(C) As of March 31, 1998, the following restricted securities were owned:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
Asset Strategy Fund
Banco de Inversion y
Comercio Exterior S.A.,
9.375%, 12-27-2000 2/18/97 $300$ 312,000 $ 309,300
Centrais Electricas
Brasileiras S.A.,
10.0%, 10-30-98 2/20/98 300 305,250 304,125
Cervejarias Kaiser S.A.,
8.875%, 9-26-2005 9/16/97 300 299,070 281,625
Companhia Energetica de Minas
Gerais- CEMIG,
9.125%, 11-18-2004 2/17/98 300 294,563 297,750
Companhia Paranaense de
Energia-COPEL,
9.75%, 5-2-2005 4/22/97 300 298,854 295,500
Corporacion Andina de Fomento,
6.625%, 10-14-98 3/19/98 275 274,312 274,656
Perez Companc S.A.,
8.375%, 7-30-98 3/19/98 160 160,000 161,000
Petroleos Mexicanos,
8.375%, 3-30-2005 3/25/98 300 299,346 300,000
---------- ----------
$2,243,395 $2,223,956
========== ==========
High Income Fund
ACME Television, LLC,
0.0%, 9-20-2004 9/24/97 $100$ 72,783 $ 82,250
APCOA, Inc.,
9.25%, 3-15-2008 3/25/98 250 250,000 253,125
Amscan Holdings Inc.,
9.875%, 12-15-200712/15/97 100 100,000 104,750
Aviation Sales Company,
8.125%, 2-15-2008 2/11/98 100 99,395 98,500
Chattem, Inc.,
8.875%, 4-1-2008 3/20/98 100 100,000 101,500
Columbus McKinnon Corporation,
8.5%, 4-1-2008 3/26/98 100 99,734 100,750
Concentric Network Corporation, Units,
12.75%, 12-15-200712/15/97 250 250,000 287,500
Crown Castle International Corp.,
0.0%, 11-15-2007 11/20/97 200 119,530 134,500
Delta Mills, Inc.,
9.625%, 9-1-2007 8/20/97 25 25,000 26,062
9/3/97 50 50,250 52,125
Diamond Triumph Auto Glass, Inc.,
9.25%, 4-1-2008 3/25/98 100 100,000 101,625
Elgar Holdings, Inc.,
9.875%, 2-1-2008 1/30/98 250 250,000 255,000
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 2/23/98 100 100,000 99,500
Galey & Lord, Inc.,
9.125%, 3-1-2008 2/19/98 250 248,750 253,750
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 10/9/97 115 122,619 125,350
1/16/98 135 145,800 147,150
Huntsman Packaging Corporation,
9.125%, 10-1-2007 9/19/97 75 75,000 76,594
ITC ^ DeltaCom, Inc.,
8.875%, 3-1-2008 2/26/98 100 99,900 103,500
Intermedia Communications Inc.,
8.5%, 1-15-2008 1/8/98 250 256,250 262,500
Iridium LLC,
11.25%, 7-15-2005 10/9/97 100 100,000 106,000
LIN Holdings Corp.,
0.0%, 3-1-2008 2/18/98 250 153,562 157,500
LIN Television Corporation,
8.375%, 3-1-2008 2/18/98 100 99,766 100,750
National Equipment Services, Inc.,
10.0%, 11-30-200411/20/97 250 246,918 265,000
Nebraska Book Company, Inc.,
8.75%, 2-15-2008 2/19/98 250 250,000 250,000
Nextel Communications, Inc.,
0.0%, 2-15-2008 2/10/98 100 61,750 63,875
Perry-Judd's Incorporated,
10.625%, 12-15-200712/10/97 100 100,000 105,250
2/9/98 150 158,625 157,875
Phase Metrics, Inc.,
10.75%, 2-1-2005 1/23/98 250 250,000 253,437
Pillowtex Corporation,
9.0%, 12-15-2007 12/15/97 250 250,000 260,625
Richmont Marketing Specialists Inc.,
10.125%, 12-15-200712/16/97 100 100,000 104,250
SF Holdings Group, Inc.,
0.0%, 3-15-2008 3/6/98 250 138,125 140,000
Safelite Glass Corp.,
9.875%, 12-15-2006 9/3/97 50 53,250 53,375
3/18/98 200 213,000 213,500
Satelites Mexicanos, S.A. de C.V.,
10.125%, 11-1-20041/22/98 250 250,000 257,500
Sealy Mattress Company,
9.875%, 12-15-200712/11/97 250 250,000 265,000
SIMCALA, Inc.,
9.625%, 4-15-2006 3/24/98 250 250,000 253,125
Southern Foods Group, L.P.,
9.875%, 9-1-2007 8/27/97 50 50,000 53,063
TransWestern Publishing Company LLC,
9.625%, 11-15-200711/6/97 100 100,000 105,750
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 3/31/98 250 254,687 253,750
WinStar Communications, Inc.:
0.0%, 10-15-2005
(Convertible) 10/9/97 100 89,000 142,000
10.0%, 3-15-2008 3/17/98 250 250,000 253,750
---------- ----------
$6,233,694 $6,481,406
========== ==========
The total market value of restricted securities represents 11.32% and
54.87% of the total net assets of Asset Strategy Fund and High Income Fund,
respectively, at March 31, 1998.
(D) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(E) Each Unit of Concentric Network Corporation consists of $1,000 principal
amount of 12.75% senior notes due 2007 and one warrant to purchase 6.34
shares of common stock, par value $0.001 per share.
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.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998 Total Science and
Return Growth Technology
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4).. $481,046,593 $329,305,519 $7,471,681
Cash ................... 2,923 5,086 1,826
Receivables:
Fund shares sold ...... 1,327,379 1,499,317 121,442
Investment securities sold --- 1,467,672 218,743
Dividends and interest. 357,342 77,607 3,324
Unamortized organization
expenses (Note 2) ..... --- --- ---
Prepaid registration fees (Note 2) --- --- 10,395
Prepaid insurance premium 1,620 1,090 ---
------------ ------------ ----------
Total assets ........ 482,735,857 332,356,291 7,827,411
Liabilities ------------ ------------ ----------
Payable to Fund shareholders 2,957,067 2,048,479 22,119
Payable for investment
securities purchased .. 5,658,127 --- 172,019
Accrued service fee -
Class B (Note 3)....... 127,330 90,410 2,562
Accrued transfer agency and
dividend disbursing (Note 3) 51,185 48,506 2,529
Organization expenses payable --- --- ---
Registration fees payable --- --- 10,395
Accrued distribution
fee - Class B (Note 3). 9,731 6,763 156
Dividends payable ...... --- --- ---
Accrued accounting
services fee (Note 3).. 5,000 4,167 ---
Accrued management fee (Note 3) 9,210 7,304 146
Other .................. 5,537 3,515 2,740
------------ ------------ ----------
Total liabilities ... 8,823,187 2,209,144 212,666
------------ ------------ ----------
Total net assets ... $473,912,670 $330,147,147 $7,614,745
Net Assets ============ ============ ==========
$0.01 par value capital stock
Capital stock ......... $ 193,613 $ 115,541 $ 6,340
Additional paid-in capital 287,423,416 201,513,232 6,514,563
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income ... --- --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 9,992,731 19,187,793 (145,612)
Net unrealized appreciation
of investments ...... 176,302,910 109,330,581 1,239,454
------------ ------------ ----------
Net assets applicable to
outstanding units
of capital ......... $473,912,670 $330,147,147 $7,614,745
============ ============ ==========
Net asset value, redemption and
offering price per share:
Class B Shares ......... $24.48 $28.57 $12.01
Class Y Shares ......... $24.91 $29.09 $ ---
Capital shares outstanding:
Class B Shares ......... 19,323,507 11,532,347 634,008
Class Y Shares ......... 37,840 21,759 ---
Capital shares authorized 500,000,000 500,000,000
500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998 International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Assets ------------ ----------- -----------
Investment securities--at
value (Notes 1 and 4).. $89,029,096 $20,188,760 $18,189,115
Cash ................... 1,846 3,850 3,926
Receivables:
Fund shares sold ...... 292,710 153,359 41,038
Investment securities sold --- --- ---
Dividends and interest. 139,625 156,593 326,976
Unamortized organization
expenses (Note 2) ..... --- 329 ---
Prepaid registration fees (Note 2) --- --- ---
Prepaid insurance premium 445 165 185
----------- ----------- -----------
Total assets ........ 89,463,722 20,503,056 18,561,240
Liabilities ----------- ----------- -----------
Payable to Fund shareholders 732,389 190,725 205,708
Payable for investment
securities purchased .. 1,211,851 656,574 ---
Accrued service fee -
Class B (Note 3)....... 25,268 5,876 5,786
Accrued transfer agency and
dividend disbursing (Note 3) 14,547 3,867 3,496
Organization expenses payable --- 329 ---
Registration fees payable --- --- ---
Accrued distribution
fee - Class B (Note 3). 1,790 397 372
Dividends payable ...... --- --- 10,691
Accrued accounting
services fee (Note 3).. 2,500 833 833
Accrued management fee (Note 3) 1,937 432 281
Other .................. 13,044 3,603 1,633
----------- ----------- -----------
Total liabilities ... 2,003,326 862,636 228,800
----------- ----------- -----------
Total net assets ... $87,460,396 $19,640,420 $18,332,440
Net Assets =========== =========== ===========
$0.01 par value capital stock
Capital stock ......... $ 58,151 $ 17,196 $ 18,078
Additional paid-in capital 65,033,436 17,859,245 18,286,005
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income ... --- 25,204 ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 645,376 579,883 (154,539)
Net unrealized appreciation
of investments ...... 21,723,433 1,158,892 182,896
----------- ----------- -----------
Net assets applicable to
outstanding units
of capital ......... $87,460,396 $19,640,420 $18,332,440
=========== =========== ===========
Net asset value, redemption and
offering price per share:
Class B Shares ......... $15.04 $11.42 $10.14
Class Y Shares ......... $15.35 $11.43 $10.14
Capital shares outstanding:
Class B Shares ......... 5,787,824 1,699,898 1,789,645
Class Y Shares ........ 27,313 19,676 18,129
Capital shares authorized 500,000,000 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1998 High Municipal
Income Bond
Fund Fund
Assets ------------ -----------
Investment securities--at
value (Notes 1 and 4).. $11,945,956 $40,811,831
Cash ................... 1,406 3,027
Receivables:
Fund shares sold ...... 170,976 154,774
Investment securities sold 256,875 ---
Dividends and interest. 200,496 594,256
Unamortized organization
expenses (Note 2) ..... --- ---
Prepaid registration fees (Note 2) 10,607 ---
Prepaid insurance premium --- 325
----------- -----------
Total assets ........ 12,586,316 41,564,213
Liabilities ----------- -----------
Payable to Fund shareholders 25,627 505,893
Payable for investment
securities purchased .. 715,120 987,170
Accrued service fee -
Class B (Note 3)....... 2,585 11,874
Accrued transfer agency and
dividend disbursing (Note 3) 1,488 6,576
Organization expenses payable --- ---
Registration fees payable 10,607 ---
Accrued distribution
fee - Class B (Note 3). 242 827
Dividends payable ...... 6,965 18,842
Accrued accounting
services fee (Note 3).. 833 1,667
Accrued management fee (Note 3) 211 615
Other .................. 10,771 8,176
----------- -----------
Total liabilities ... 774,449 1,541,640
----------- -----------
Total net assets ... $11,811,867 $40,022,573
Net Assets =========== ===========
$0.01 par value capital stock
Capital stock ......... $ 10,949 $ 34,952
Additional paid-in capital 11,237,968 37,253,900
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income ... --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 57,036 172,558
Net unrealized appreciation
of investments ...... 505,914 2,561,163
----------- -----------
Net assets applicable to
outstanding units
of capital ......... $11,811,867 $40,022,573
=========== ===========
Net asset value, redemption and
offering price per share:
Class B Shares ......... $10.79 $11.45
Class Y Shares ......... $ --- $ ---
Capital shares outstanding:
Class B Shares ......... 1,094,867 3,495,200
Class Y Shares ......... --- ---
Capital shares authorized 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Period Ended MARCH 31, 1998
Total Science and
Return Growth Technology
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 2,242,785 $ 2,238,902 $ 37,451
Dividends ............. 4,536,104 297,798 1,545
----------- ------------ ----------
Total income ........ 6,778,889 2,536,700 38,996
----------- ------------ ----------
Expenses (Notes 2 and 3):
Distribution fees - Class B 2,996,102 1,888,952 18,896
Investment management fee 2,837,414 2,041,002 17,585
Service fee - Class B.. 957,004 607,777 7,342
Transfer agency and dividend
disbursing - Class B 605,529 599,298 12,630
Registration fees ..... 67,213 46,298 3,556
Accounting services fee 59,167 49,167 2,972
Custodian fees ........ 26,509 13,650 2,020
Audit fees ............ 16,596 14,117 ---
Amortization of organization
expenses ............ 3,259 3,259 32
Legal fees ............ 12,686 8,126 ---
Amortization of prepaid
registration fees ... --- --- 14,554
Shareholder servicing fee -
Class Y ............. 1,093 654 ---
Distribution fees - Class Y 1,817 1,061 ---
Other ................. 97,667 86,688 1,277
------------ ------------ ----------
Total expenses ...... 7,682,056 5,360,049 80,864
------------ ------------ ----------
Net investment income (loss) (903,167) (2,823,349) (41,868)
------------ ------------ ----------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 22,548,354 24,170,149 (145,612)
Realized net gain (loss) from foreign
currency transactions . 272 --- ---
Realized net gain on forward
currency contracts .... --- --- ---
Realized net loss on futures
contracts closed ...... --- --- ---
------------ ------------ ----------
Realized net gain (loss)
on investments ...... 22,548,626 24,170,149 (145,612)
.............. ------------ ------------ ----------
Unrealized appreciation in value
of securities during the period 108,013,384106,888,044 1,239,454
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies --- --- ---
Unrealized appreciation on
forward currency contracts
during the period ..... --- --- ---
------------ ------------ ----------
Unrealized appreciation 108,013,384 106,888,044 1,239,454
Net gain on investments 130,562,010 131,058,193 1,093,842
------------ ------------ ----------
Net increase in net assets
resulting from operations $129,658,843$128,234,844 $1,051,974
============ ============ ==========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Period Ended MARCH 31, 1998
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Investment Income ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 321,816 $ 612,744 $1,210,599
Dividends ............. 727,248 90,971 ---
----------- ---------- ----------
Total income ........ 1,049,064 703,715 1,210,599
----------- ---------- ----------
Expenses (Notes 2 and 3):
Distribution fees - Class B 511,488 117,127 135,734
Investment management fee 553,692 127,507 101,985
Service fee - Class B.. 159,593 38,984 41,356
Transfer agency and dividend
disbursing - Class B 166,835 41,046 44,694
Registration fees ..... 33,611 23,749 23,132
Accounting services fee 30,000 10,000 10,000
Custodian fees ........ 101,889 5,800 3,272
Audit fees ............ 14,715 10,583 11,439
Amortization of organization
expenses ............ 3,259 152 3,259
Legal fees ............ 1,903 905 664
Amortization of prepaid
registration fees ... --- --- ---
Shareholder servicing fee -
Class Y ............. 451 251 225
Distribution fees - Class Y 734 422 361
Other ................. 27,096 6,905 8,839
----------- ---------- ----------
Total expenses ...... 1,605,266 383,431 384,960
----------- ---------- ----------
Net investment income (loss) (556,202) 320,284 825,639
----------- ---------- ----------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 5,852,529 1,494,520 (66,217)
Realized net gain (loss) from foreign
currency transactions . (81,087) (3,045) ---
Realized net gain on forward
currency contracts .... 73,788 --- ---
Realized net loss on futures
contracts closed ...... --- --- ---
----------- ---------- ----------
Realized net gain (loss)
on investments ...... 5,845,230 1,491,475 (66,217)
----------- ---------- ----------
Unrealized appreciation in value
of securities during the period 16,427,238 1,660,395 499,765
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies 20,895 --- ---
Unrealized appreciation on
forward currency contracts
during the period ..... 229,367 --- ---
----------- ---------- ----------
Unrealized appreciation 16,677,500 1,660,395 499,765
----------- ---------- ----------
Net gain on investments 22,522,730 3,151,870 433,548
----------- ---------- ----------
Net increase in net assets
resulting from operations $21,966,528 $3,472,154 $1,259,187
=========== ========== ==========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Period Ended MARCH 31, 1998
High Municipal
Income Bond
Fund Fund
Investment Income ------------ -----------
Income (Note 1B):
Interest and amortization $319,732 $2,260,124
Dividends ............. --- ---
-------- ----------
Total income ........ 319,732 2,260,124
-------- ----------
Expenses (Notes 2 and 3):
Distribution fees - Class B 28,132 290,348
Investment management fee 24,352 216,501
Service fee - Class B.. 9,206 88,723
Transfer agency and dividend
disbursing - Class B 7,662 60,701
Registration fees ..... 4,699 27,114
Accounting services fee 833 20,000
Custodian fees ........ 2,387 4,675
Audit fees ............ 2,020 10,857
Amortization of organization
expenses ............ --- 3,259
Legal fees ............ 43 1,312
Amortization of prepaid
registration fees ... 14,849 ---
Shareholder servicing fee -
Class Y ............. --- 1
Distribution fees - Class Y --- 1
Other ................. 597 9,607
-------- ----------
Total expenses ...... 94,780 733,099
-------- ----------
Net investment income (loss) 224,952 1,527,025
-------- ----------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 57,036 544,017
Realized net gain (loss) from foreign
currency transactions . --- ---
Realized net gain on forward
currency contracts .... --- ---
Realized net loss on futures
contracts closed ...... --- (122,469)
-------- ----------
Realized net gain (loss)
on investments ...... 57,036 421,548
-------- ----------
Unrealized appreciation in value
of securities during the period 505,914 2,048,223
Unrealized appreciation from
translation of assets and
liabilities in foreign currencies --- ---
Unrealized appreciation on
forward currency contracts
during the period ..... --- ---
-------- ----------
Unrealized appreciation 505,914 2,048,223
-------- ----------
Net gain on investments 562,950 2,469,771
-------- ----------
Net increase in net assets
resulting from operations $787,902 $3,996,796
======== ==========
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (903,167) $ (2,823,349) $ (41,868)
Realized net gain (loss)
on investments ...... 22,548,626 24,170,149 (145,612)
Unrealized appreciation 108,013,384 106,888,044 1,239,454
------------ ------------ ----------
Net increase in net assets
resulting from operations 129,658,843 128,234,844 1,051,974
------------ ------------ ----------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- --- ---
Class Y ............. --- --- ---
From realized net gain on
investment transactions
Class B ............. (14,304,622) (12,537,134) ---
Class Y ............. (26,035) (21,545) ---
------------ ------------ ----------
(14,330,657) (12,558,679) ---
------------ ------------ ----------
Capital share transactions
(Note 6) .............. 40,627,308 16,119,272 6,562,771
------------ ------------ ----------
Total increase ........ 155,955,494 131,795,437 7,614,745
Net Assets
Beginning of period .... 317,957,176 198,351,710 ---
------------ ------------ ----------
End of period .......... $473,912,670 $330,147,147 $7,614,745
============ ============ ==========
Undistributed net
investment income (loss) $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 88-101.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (556,202) $ 320,284 $ 825,639
Realized net gain (loss)
on investments ...... 5,845,230 1,491,475 (66,217)
Unrealized appreciation 16,677,500 1,660,395 499,765
----------- ----------- -----------
Net increase in net assets
resulting from operations 21,966,528 3,472,154 1,259,187
----------- ----------- -----------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- (318,041) (817,941)
Class Y ............. --- (5,029) (7,698)
From realized net gain on
investment transactions
Class B ............. (7,172,686) (680,866) ---
Class Y ............. (30,585) (7,763) ---
----------- ----------- -----------
(7,203,271) (1,011,699) (825,639)
----------- ----------- -----------
Capital share transactions
(Note 6) .............. 21,997,792 3,666,259 23,853
----------- ----------- -----------
Total increase ........ 36,761,049 6,126,714 457,401
Net Assets
Beginning of period .... 50,699,347 13,513,706 17,875,039
----------- ----------- -----------
End of period .......... $87,460,396 $19,640,420 $18,332,440
=========== =========== ===========
Undistributed net
investment income (loss) $--- $25,204 $---
==== ======= ====
*See "Financial Highlights" on pages 88-101.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
High Municipal
Income Bond
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 224,952 $ 1,527,025
Realized net gain (loss)
on investments ...... 57,036 421,548
Unrealized appreciation 505,914 2,048,223
----------- -----------
Net increase in net assets
resulting from operations 787,902 3,996,796
----------- -----------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. (224,952) (1,527,015)
Class Y ............. --- (10)
From realized net gain on
investment transactions
Class B ............. --- ---
Class Y ............. --- ---
----------- -----------
(224,952) (1,527,025)
----------- -----------
Capital share transactions
(Note 6) .............. 11,248,917 934,188
----------- -----------
Total increase ........ 11,811,867 3,403,959
Net Assets
Beginning of period .... --- 36,618,614
----------- -----------
End of period .......... $11,811,867 $40,022,573
=========== ===========
Undistributed net
investment income ..... $--- $---
==== ====
*See "Financial Highlights" on pages 88-101.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS 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
.............. ------------ ------------ -----------
Distributions 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 88-101.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS 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
----------- ----------- -----------
Distributions 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 88-101.
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 fiscal year ended March 31,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $18.18 $16.34 $12.73 $11.99 $11.07
------ ------ ------ ------ ------
Income from investment
operations:
Net investment (loss) (0.04) (0.02) (0.01) 0.00 (0.01)
Net realized and
unrealized gain
on investments .. 7.12 1.97 3.67 0.74 0.93
------ ------ ------ ------ ------
Total from investment
operations ....... 7.08 1.95 3.66 0.74 0.92
------ ------ ------ ------ ------
Less distribution
from capital gains (0.78) (0.11) (0.05)(0.00) (0.00)
------ ------ ------ ------ ------
Net asset value,
end of period .... $24.48 $18.18 $16.34 $12.73 $11.99
====== ====== ====== ====== ======
Total return ....... 39.57% 11.93% 28.75% 6.17% 8.31%
Net assets, end of
period (000
omitted) .......... $472,970$317,453$208,233$104,691$61,735
Ratio of expenses
to average net
assets ........... 1.92% 1.95% 1.99% 2.05% 2.16%
Ratio of net investment
loss to average
net assets ....... -0.23% -0.17% -0.11% -0.04% -0.12%
Portfolio turnover
rate ............. 36.94% 26.23% 16.78% 16.60% 17.31%
Average commission
rate paid ......... $0.0613$0.0578
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 year For the
ended March 31, period from
------------------- December 29, 1995*
1998 1997 to March 31, 1996
--------------- --------------------
Net asset value,
beginning of
period ........... $18.35 $16.38 $15.32
------ ------ ------
Income from investment
operations:
Net investment
income........... 0.10 .04 0.03
Net realized and
unrealized gain
on investments .. 7.24 2.04 1.03
------ ------ ------
Total from investment
operations ....... 7.34 2.08 1.06
------ ------ ------
Less distribution from
capital gains .... (0.78) (0.11) (0.00)
------ ------ ------
Net asset value,
end of period .... $24.91 $18.35 $16.38
====== ====== ======
Total return ....... 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $943 $504 $87
Ratio of expenses
to average net
assets ........... 1.20% 1.18% 0.96%**
Ratio of net investment
income to average
net assets ....... 0.50% 0.65% 1.04%**
Portfolio turnover
rate ............. 36.94% 26.23% 16.78%**
Average commission
rate paid ......... $0.0613$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 fiscal year ended March 31,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $18.16 $21.00 $16.90 $14.08 $11.68
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.25) (0.06) (0.02) 0.00 (0.04)
Net realized and
unrealized gain (loss)
on investments .. 11.81 (2.18) 4.49 3.15 2.75
------ ------ ------ ------ ------
Total from investment
operations ....... 11.56 (2.24) 4.47 3.15 2.71
------ ------ ------ ------ ------
Less distribution
from capital gains (1.15) (0.60) (0.37) (0.33) (0.31)
------ ------ ------ ------ ------
Net asset value,
end of period .... $28.57 $18.16 $21.00 $16.90 $14.08
====== ====== ====== ====== ======
Total return ....... 65.37%-10.97% 26.57% 22.61% 23.16%
Net assets, end of period
(000 omitted) ... $329,514$198,088$202,557$100,683$43,524
Ratio of expenses
to average net
assets ........... 2.13% 2.12% 2.14% 2.23% 2.34%
Ratio of net investment
income (loss) to average
net assets ....... -1.12% -0.27% -0.25% 0.01% -0.97%
Portfolio turnover
rate .............. 33.46% 37.20% 31.84% 56.30% 69.12%
Average commission
rate paid ......... $0.0528$0.0516
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 year For the
ended March 31, period from
------------------- December 29, 1995*
1998 1997 to March 31, 1996
--------------- --------------------
Net asset value,
beginning of
period ........... $18.32 $21.04 $20.21
------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.06) 0.01 .04
Net realized and
unrealized gain (loss)
on investments .. 11.98 (2.13) .79
------ ------ ------
Total from investment
operations ....... 11.92 (2.12) .83
------ ------ ------
Less distribution
from capital gains (1.15) (0.60) (0.00)
------ ------ ------
Net asset value,
end of period .... $29.09 $18.32 $21.04
====== ====== ======
Total return ....... 66.78%-10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $633 $264 $1
Ratio of expenses
to average net
assets ........... 1.30% 1.17% 1.17%**
Ratio of net investment
income (loss) to average
net assets ....... -0.30% 0.31% 0.78%**
Portfolio turnover
rate ............. 33.46% 37.20% 31.84%**
Average commission
rate paid ......... $0.0528$0.0516
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class B Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
July 31, 1997*
to
March 31, 1998
---------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
loss ............ (0.07)
Net realized and
unrealized gain
on investments .. 2.08
------
Total from investment
operations ....... 2.01
------
Net asset value,
end of period ..... $12.01
======
Total return ....... 20.10%
Net assets, end of
period (000
omitted) ......... $7,615
Ratio of expenses
to average net
assets ............ 3.20%**
Ratio of net investment
loss to average net
assets ............ -1.66%**
Portfolio
turnover rate ..... 26.64%
Average commission
rate paid $0.0370
*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 fiscal year ended March 31,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.40 $9.94 $9.36 $9.37 $9.68
------ ------ ------ ----- -----
Income from investment
operations:
Net investment
income (loss) ... (0.10) (0.03) 0.08 0.36 0.34
Net realized and
unrealized gain (loss)
on investments .. 4.12 2.50 0.63 (0.01) (0.31)
------ ------ ------ ----- -----
Total from investment
operations ....... 4.02 2.47 0.71 0.35 0.03
------ ------ ------ ----- -----
Less distributions:
Declared from net
investment income (0.00) (0.01) (0.11) (0.36) (0.26)
From capital gains (1.38) (0.00) (0.00) (0.00) (0.00)
In excess of net
investment income (0.00) (0.00) (0.02) (0.00) (0.00)
Tax-basis return of
capital.......... (0.00) (0.00) (0.00) (0.00) (0.08)
------ ------ ------ ----- -----
Total distributions. (1.38) (0.01) (0.13) (0.36) (0.34)
------ ------ ------ ----- -----
Net asset value,
end of period .... $15.04 $12.40 $9.94 $9.36 $9.37
====== ====== ====== ===== =====
Total return ....... 35.24% 24.85% 7.64% 3.84% 0.33%
Net assets, end of
period (000
omitted) ......... $87,041$50,472 $20,874$11,188 $10,282
Ratio of expenses
to average net
assets ........... 2.35% 2.46% 2.50% 2.29% 2.24%
Ratio of net investment
income (loss) to average
net assets ....... -0.82% -0.52% 0.63% 3.87% 3.56%
Portfolio turnover
rate ............. 105.11% 94.76% 88.55% 13.33% 34.90%
Average commission
rate paid ......... $0.0062$0.0124
*International Growth Fund (formerly Global Income Fund) changed its name and
investment objective effective April 20, 1995.
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 year For the
ended March 31, period from
------------------- December 29, 1995*
1998 1997 to March 31, 1996
--------------- --------------------
Net asset value,
beginning of
period ........... $12.52 $9.95 $9.70
------ ------ ------
Income from investment
operations:
Net investment income 0.01 0.02 0.02
Net realized and
unrealized gain
on investments .. 4.20 2.56 0.23
------ ------ ------
Total from investment
operations ....... 4.21 2.58 0.25
------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.01) (0.00)
From capital gains (1.38) (0.00) (0.00)
------ ------ ------
Total distributions (1.38) (0.01) (0.00)
------ ------ ------
Net asset value,
end of period .... $15.35 $12.52 $9.95
====== ====== ======
Total return ....... 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $419 $227 $7
Ratio of expenses
to average net
assets ........... 1.51% 1.59% 1.84%**
Ratio of net investment
income to average
net assets ....... 0.07% 0.05% 1.07%**
Portfolio turnover
rate ............. 105.11% 94.76% 88.55%**
Average commission
rate paid ......... $0.0062$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 fiscal year April 20,
ended March 31, 1995*
-------------------- to
1998 1997 March 31, 1996
------------------ ---------
Net asset value,
beginning of period $9.73 $10.15 $10.00
------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments... 2.16 (0.30) 0.14
------ ------ ------
Total from investment
operations ........ 2.37 (0.07) 0.30
------ ------ ------
Less distributions:
From net investment
income........... (0.22) (0.21) (0.15)
From capital gains (0.46) (0.14) (0.00)
------ ------ ------
Total distributions (0.68) (0.35) (0.15)
------ ------ ------
Net asset value,
end of period ..... $11.42 $9.73 $10.15
====== ====== ======
Total return ....... 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ......... $19,415$13,398 $13,221
Ratio of expenses
to average net
assets ............ 2.44% 2.52% 2.54%**
Ratio of net investment
income to average net
assets ............ 2.02% 2.21% 2.14%**
Portfolio
turnover rate ..... 220.67%109.92% 75.02%
Average commission
rate paid ......... $0.0417$0.0375
*Commencement of operations.
**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 year For the
ended March 31, period from
-------------------- December 29, 1995*
1998 1997 to March 31, 1996
---------------- ------------------
Net asset value,
beginning of
period ........... $9.73 $10.16 $10.23
----- ------ ------
Income from investment
operations:
Net investment
income........... 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments .. 2.16 (0.26) (0.08)
----- ------ ------
Total from investment
operations ....... 2.47 0.01 (0.01)
----- ------ ------
Less distributions:
From net investment
income .......... (0.31) (0.30) (0.06)
From capital gains (0.46) (0.14) (0.00)
----- ------ ------
Total distributions (0.77) (0.44) (0.06)
----- ------ ------
Net asset value,
end of period .... $11.43 $9.73 $10.16
====== ====== ======
Total return ....... 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $225 $116 $1
Ratio of expenses
to average net
assets ........... 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 2.90% 2.97% 2.34%**
Portfolio turnover
rate ............. 220.67%109.92% 75.02%**
Average commission
rate paid ......... $0.0417$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 fiscal year ended March 31,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.90 $10.00 $ 9.70 $9.84 $10.06
------ ------ ------ ----- ------
Income from investment
operations:
Net investment
income .......... 0.45 0.44 0.41 0.39 0.35
Net realized and
unrealized gain
(loss) on
investments ..... 0.24 (0.09) 0.30 (0.13) (0.20)
------ ------ ------ ----- ------
Total from investment
operations ....... 0.69 0.35 0.71 0.26 0.15
------ ------ ------ ----- ------
Less distributions:
Declared from net
investment income (0.45) (0.44) (0.41) (0.39) (0.35)
From capital gains (0.00) (0.01) (0.00) (0.01) (0.02)
------ ------ ------ ----- ------
Total distributions (0.45) (0.45) (0.41) (0.40) (0.37)
------ ------ ------ ----- ------
Net asset value,
end of period .... $10.14 $9.90 $10.00 $9.70 $ 9.84
====== ====== ====== ===== ======
Total return ....... 7.15% 3.52% 7.41% 2.73% 1.41%
Net assets, end of
period (000
omitted) ......... $18,148$17,770 $23,682$12,419 $11,671
Ratio of expenses
to average net
assets ........... 2.12% 2.07% 2.10% 2.17% 2.14%
Ratio of net investment
income to average
net assets ........ 4.52% 4.40% 4.14% 4.05% 3.41%
Portfolio turnover
rate ............. 27.37% 23.05% 22.08% 29.20% 25.90%
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 year For the
ended March 31, period from
------------------- December 29, 1995*
1998 1997 to March 31, 1996
--------------- --------------------
Net asset value,
beginning of
period ........... $9.90 $10.00 $10.16
------ ------ ------
Income from investment
operations:
Net investment
income........... 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments .. 0.24 (0.09) (0.16)
------ ------ ------
Total from investment
operations ....... 0.77 0.43 (0.05)
------ ------ ------
Less distributions:
From net investment
income .......... (0.53) (0.52) (0.11)
From capital gains (0.00) (0.01) (0.00)
------ ------ ------
Total distributions (0.53) (0.53) (0.11)
------ ------ ------
Net asset value,
end of period .... $10.14 $9.90 $10.00
====== ====== ======
Total return ....... 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted) .......... $184 $105 $1
Ratio of expenses
to average net
assets ........... 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 5.32% 5.62% 4.70%**
Portfolio turnover
rate ............. 27.37% 23.05% 22.08%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class B Shares
For a Share of Capital Stock Outstanding
Throughout the Period:
For the
period from
July 31, 1997*
to
March 31, 1998
---------
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment
income .......... 0.37
Net realized and
unrealized gain
on investments... 0.79
------
Total from investment
operations ........ 1.16
------
Less distributions:
Declared from net
investment income (0.37)
From capital gains (0.00)
------
Total distributions (0.37)
------
Net asset value,
end of period ..... $10.79
======
Total return ....... 11.77%
Net assets, end of
period (000
omitted) ......... $11,812
Ratio of expenses
to average net
assets ............ 2.52%**
Ratio of net investment
income to average net
assets ............ 5.98%**
Portfolio
turnover rate ..... 67.82%
*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 fiscal year ended March 31,
-----------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.74 $10.63 $10.30 $10.12 $10.53
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.44 0.45 0.43 0.44 0.39
Net realized and
unrealized gain
(loss) on
investments ..... 0.71 0.11 0.33 0.18 (0.28)
------ ------ ------ ------ ------
Total from investment
operations ....... 1.15 0.56 0.76 0.62 0.11
------ ------ ------ ------ ------
Less distributions:
Declared from net
investment income (0.44) (0.45) (0.43) (0.44) (0.39)
From capital gains (0.00) (0.00) (0.00) (0.00) (0.13)
------ ------ ------ ------ ------
Total distributions (0.44) (0.45) (0.43) (0.44) (0.52)
------ ------ ------ ------ ------
Net asset value,
end of period .... $11.45 $10.74 $10.63 $10.30 $10.12
====== ====== ====== ====== ======
Total return ....... 10.89% 5.32% 7.48% 6.37% 0.76%
Net assets, end of
period (000
omitted) ......... $40,023$36,618 $33,869$27,434 $24,960
Ratio of expenses
to average net
assets ........... 1.89% 1.92% 1.93% 1.94% 1.98%
Ratio of net investment
income to average
net assets ....... 3.94% 4.18% 4.05% 4.41% 3.62%
Portfolio turnover
rate ............. 27.86% 34.72% 42.02% 56.92% 18.93%
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:
ForFor the
the fiscal For the
period year period from
ended ended December 29, 1995*
6/23/97**3/31/97 to March 31, 1996
---------------- --------------------
Net asset value,
beginning of
period ........... $10.74 $10.63 $10.94
------ ------ ------
Income from investment
operations:
Net investment
income........... 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ..... 0.29 0.11 (0.31)
------ ------ ------
Total from investment
operations ....... 0.39 0.63 (0.19)
------ ------ ------
Less dividends from net
investment income (0.10) (0.52) (0.12)
------ ------ ------
Net asset value,
end of period .... $11.03 $10.74 $10.63
====== ====== ======
Total return ....... 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $0 $1 $1
Ratio of expenses
to average net
assets ........... 4.95%***1.28% 1.18%***
Ratio of net investment
income to average
net assets ....... 4.12%***4.83% 4.33%***
Portfolio turnover
rate ............. 27.86%***34.72% 42.02%***
*Commencement of operations.
**All outstanding shares were redeemed on June 23, 1997 at the ending net asset
value shown in the table.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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 eight 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 the Nasdaq Stock Market, which provides information on bid
and asked 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, 1998 have been
reclassified between accumulated undistributed net investment income and
accumulated undistributed net realized gain (loss) on investment
transactions or to additional paid-in capital:
Increase Increase
(Decrease) (Decrease)
Accumulated Accumulated
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Income Gain Capital
-------------- ------------- ------------
Total Return Fund $ 903,167 $ (903,167) $ ---
Growth Fund 2,823,349 (2,823,349) ---
Science and Technology
Fund 41,868 --- (41,868)
International Growth
Fund 556,202 (556,202) ---
Asset Strategy Fund (3,045) 3,045 ---
Net investment income, net realized gains and net assets were not affected
by these changes.
F. Futures -- See Note 7 -- Futures.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Organization
The Corporation was incorporated in Maryland on January 29, 1992 and was
inactive (except for matters relating to its organization and registration as an
investment company under the Investment Company Act of 1940 and registration of
shares under the Securities Act of 1933) until September 21, 1992 (the date of
the initial public offering). The original Corporation consisted of five mutual
funds - Total Return Fund, Growth Fund, Limited-Term Bond Fund, Municipal Bond
Fund and International Growth Fund.
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 were an obligation to be paid by the
original mutual funds. These expenses were amortized evenly over the 60-month
period 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'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.
Science and Technology Fund and High Income Fund were established in
Maryland and were 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 July 31, 1997
(the date of the initial public offering).
Science and Technology Fund and High Income Fund's registration expenses
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 over 12 months following the
incurrence of the registration expenses.
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, Science and Technology Fund - 0.71% 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, High Income Fund -
0.66% 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,
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 Class B 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, 1998, the Distributor received $7,896,764 in
12b-1 payments. During this same period W&R paid sales commissions of
$3,538,271.
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, 1998, the Distributor received $4,396 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, 1998, the Distributor received $928,824 in deferred sales
charges.
The Corporation paid Directors' fees of $24,628, which are included in
other expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., 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, 1998 are
summarized as follows:
Total Science and
Return Growth Technology
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$132,409,198 $ 71,066,633 $ 6,100,494
Purchases of U.S. Government
securities ............... --- --- ---
Purchases of short-term
securities ............... 494,373,110 499,529,707 10,439,680
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 140,534,645 82,789,524 763,248
Proceeds from maturities
and sales of U.S.
Government securities .... --- --- ---
Proceeds from maturities
and sales of short-term
securities ............... 457,024,425 487,547,373 9,425,117
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $80,720,244 $21,313,799 $2,714,600
Purchases of U.S. Government
securities ............... --- 7,114,013 2,015,093
Purchases of short-term
securities ............... 95,420,876 46,427,972 8,115,214
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 66,141,425 23,374,086 3,540,999
Proceeds from maturities
and sales of U.S.
Government securities .... --- 4,394,090 1,335,628
Proceeds from maturities
and sales of short-term
securities ............... 97,469,458 43,345,625 7,877,055
High Municipal
Income Bond
Fund Fund
----------- ----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $14,341,508 $13,540,130
Purchases of U.S. Government
securities ............... --- ---
Purchases of short-term
securities ............... 12,248,500 10,863,889
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 3,525,494 10,565,527
Proceeds from maturities
and sales of U.S.
Government securities .... --- ---
Proceeds from maturities
and sales of short-term
securities ............... 11,721,739 12,104,175
For Federal income tax purposes, cost of investments owned at March 31,
1998 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Cost AppreciationDepreciation Appreciation
----------- -------------------------------------
Total Return Fund $304,748,511 $176,531,236 $233,154 $176,298,082
Growth Fund 219,974,938 118,209,102 8,878,521 109,330,581
Science and Technology
Fund 6,232,227 1,288,048 48,594 1,239,454
International Growth
Fund 67,302,982 24,821,730 3,398,771 21,422,959
Asset Strategy Fund 19,029,868 1,290,868 131,976 1,158,892
Limited-Term Bond Fund18,006,219 214,344 31,448 182,896
High Income 11,440,042 519,660 13,746 505,914
Municipal Bond Fund 38,400,915 2,416,805 5,889 2,410,916
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Total Return Fund, Growth Fund,
International Growth fund and High Income Fund realized capital gain net income
of $22,548,354, $24,170,150, $6,155,683 and $57,069, respectively, during the
year ended March 31, 1998. For Federal income tax purposes, Asset Strategy Fund
realized capital gain net income of $1,270,152 during the year ended March 31,
1998, which included utilization of the remaining capital loss carryovers of
$224,368. For Federal income tax purposes, Municipal Bond Fund realized capital
gain net income of $321, 347 during the year ended March 31, 1998, which
included utilization of the remaining capital loss carryovers of $160,264. For
Federal income tax purposed, Science and Technology Fund realized no net capital
gains or losses for the year ended March 31, 1998, because of the effect of
certain losses deferred into the next fiscal year (see discussion below). For
Federal income tax purposes, Limited-Term Bond Fund realized capital losses of
$66,217 during the year ended March 31, 1998, and these losses are available to
offset future realized capital gain net income of the Fund through March 31,
2006. In addition, the Fund has loss carryovers of $88,346 which are available
to offset future realized capital gain net income through March 31, 2005. A
portion of the capital gain net income of Total Return Fund, Growth Fund,
International Growth Fund, and Asset Strategy Fund was paid to shareholders
during the year ended March 31, 1998. Remaining capital gains of these Funds,
as well as the capital gain net income of High Income Fund and Municipal Bond
Fund, will be distributed to shareholders. Internal Revenue Code regulations
permit each Fund to defer into its next fiscal year net capital losses or net
long-term capital losses incurred between each November 1 and the end of its
fiscal year ("post-October losses"). From November 1, 1997 through March 31,
1998, Science and Technology Fund incurred net capital losses of $145,612, which
have been deferred to the fiscal year ending March 31, 1999.
NOTE 6 -- Multiclass Operations
Each Fund within the Corporation is authorized to offer investors 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 periods ended March 31, 1998 are
summarized below.
Total Science and
Return Growth Technology
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 4,399,162 2,218,331 688,314
Class Y ............ 10,267 7,001 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 670,612 554,676 ---
Class Y ............ 1,205 940 ---
Shares redeemed:
Class B ............ (3,211,891) (2,148,695) (54,306)
Class Y ............ (1,100) (590) ---
--------- --------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 1,857,883 624,312 634,008
Class Y ............ 10,372 7,351 ---
--------- --------- -------
Total for Fund .... 1,868,255 631,663 634,008
========= ========= =======
Value issued from sale
of shares:
Class B ............ $95,637,486 $50,811,741 $7,140,148
Class Y ............ 225,894 159,084 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 14,277,278 12,519,105 ---
Class Y ............ 26,035 21,545 ---
Value redeemed:
Class B ............ (69,514,589) (47,378,065) (577,377)
Class Y ............ (24,796) (14,138) ---
----------- ----------- ----------
Increase (decrease) in outstanding
capital:
Class B ............ 40,400,175 15,952,781 6,562,771
Class Y ............ 227,133 166,491 ---
----------- ----------- ----------
Total for Fund .. $40,627,308 $16,119,272 $6,562,771
=========== =========== ==========
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 2,054,848 605,147 569,831
Class Y ............ 7,435 7,066 7,245
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 597,161 93,471 78,843
Class Y ............ 2,503 1,199 757
Shares redeemed:
Class B ............ (934,627) (375,975) (653,746)
Class Y ............ (758) (524) (491)
--------- ------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 1,717,382 322,643 (5,072)
Class Y ............ 9,180 7,741 7,511
--------- ------- -------
Total for Fund .... 1,726,562 330,384 2,439
========= ======= =======
Value issued from sale
of shares:
Class B ............ $27,025,697 $6,622,288 $5,743,494
Class Y ............ 98,868 75,255 73,278
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 7,165,928 995,509 795,037
Class Y ............ 30,585 12,792 7,642
Value redeemed:
Class B ............ (12,313,001) (4,033,849) (6,590,640)
Class Y ............ (10,285) (5,736) (4,958)
----------- ---------- -----------
Increase (decrease) in outstanding
capital:
Class B ............ 21,878,624 3,583,948 (52,109)
Class Y ............ 119,168 82,311 75,962
----------- ---------- ----------
Total for Fund .. $21,997,792 $3,666,259 $ 23,853
=========== ========== ==========
High Municipal
Income Bond
Fund Fund
----------- ------------
Shares issued from sale
of shares:
Class B ............ 1,155,007 740,539
Class Y ............ --- ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 20,516 122,880
Class Y ............ --- ---
Shares redeemed:
Class B ............ (80,656) (779,193)
Class Y ............ --- (97)
--------- ---------
Increase (decrease) in outstanding
capital shares:
Class B ............ 1,094,867 84,226
Class Y ............ --- (97)
--------- ---------
Total for Fund .... 1,094,867 84,129
========= =========
Value issued from sale
of shares:
Class B ............ $11,880,381 $8,274,574
Class Y ............ --- ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 214,581 1,376,981
Class Y ............ --- 7
Value redeemed:
Class B ............ (846,045) (8,716,298)
Class Y ............ --- (1,076)
----------- ----------
Increase (decrease) in outstanding
capital:
Class B ............ 11,248,917 935,257
Class Y ............ --- (1,069)
----------- ----------
Total for Fund .. $11,248,917 $ 934,188
=========== ==========
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 (decrease) 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 (decrease) 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
=========== =========== ==========
NOTE 7 -- Futures
Upon entering into a futures contract, the Fund is required to deposit, in
a segregated account, an amount of cash or U.S. Treasury Bills equal to a
varying specified percentage of the contract amount. This amount is known as
the initial margin. Subsequent payments ("variation margins") are made or
received by the Fund each day, dependent on the daily fluctuations in the value
of the underlying debt security or index. These changes in the variation
margins are recorded by the Fund as unrealized gains or losses. Upon the
closing of the contracts, the cumulative net change in the variation margin is
recorded as realized gain or loss. The Fund uses futures to attempt to reduce
the overall risk of its investments.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of Total Return Fund, Growth Fund, Science and
Technology Fund, International Growth Fund, Asset Strategy Fund, Limited-Term
Bond Fund, High Income Fund and Municipal Bond Fund (collectively the "Funds")
comprising Waddell & Reed Funds, Inc. as of March 31, 1998, and the related
statements of operations for the fiscal periods then ended and changes in net
assets for each of the fiscal periods in the two-year period then ended, and the
financial highlights for each of the periods in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
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, 1998 by correspondence with the custodian and brokers or other alternative
procedures. 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 positions of each of the
respective funds comprising Waddell & Reed Funds, Inc. as of March 31, 1998, the
results of their operations, the changes in their net assets, and their
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 8, 1998
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares in Total Return Fund, Growth Fund or Asset Strategy Fund,
respectively, owned by you on the record dates, will give you the total amounts
to be reported in your Federal income tax return for the years in which they
were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------------------
For Individuals For Corporations
--------------------------------------------------------------
- -
Record OrdinaryLong-Term Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% RateQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ---------------------------------------
Total Return Fund
Class B and Class Y
12-12-97 $0.777 $0.0597 $0.2216 $0.4957 $0.0000 $0.0597 $0.7173
------ ------- ------- ------- ------- ------- -------
Total $0.777 $0.0597 $0.2216 $0.4957 $0.0000 $0.0597 $0.7173
====== ======= ======= ======= ======= ======= =======
Growth Fund
Class B and Class Y
12-12-97 $1.154 $0.1491 $0.8059 $0.1990 $0.0000 $0.1491 $1.0049
------ ------- ------- ------- ------- ------- -------
Total $1.154 $0.1491 $0.8059 $0.1990 $0.0000 $0.1491 $1.0049
====== ======= ======= ======= ======= ======= =======
International Growth Fund
Class B and Class Y
12-12-97 $1.380 $0.9650 $0.1955 $0.2195 $0.0000 $0.9650 $0.4150
------ ------- ------- ------- ------- ------- -------
Total $1.380 $0.9650 $0.1955 $0.2195 $0.0000 $0.9650 $0.4150
====== ======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class B
6-13-97 $0.040 $0.0400 $0.0000 $0.0000 $0.0073 $0.0327 $0.0000
9-12-97 .040 0.0400 0.0000 0.0000 0.0109 0.0291 0.0000
12-12-97 .560 0.5371 0.0000 0.0229 0.0267 0.5104 0.0229
3-13-98 .040 0.0400 0.0000 0.0000 0.0012 0.0388 0.0000
------ ------- ------- ------- ------- ------- -------
Total $0.680 $0.6571 $0.0000 $0.0229 $0.0461 $0.6110 $0.0229
====== ======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class Y
6-13-97 $0.058 $0.0580 $0.0000 $0.0000 $0.0106 $0.0474 $0.0000
9-12-97 .068 0.0680 0.0000 0.0000 0.0185 0.0495 0.0000
12-12-97 .581 0.5581 0.0000 0.0229 0.0324 0.5257 0.0229
3-13-98 .062 0.0620 0.0000 0.0000 0.0019 0.0601 0.0000
------ ------- ------- ------- ------- ------- -------
Total $0.769 $0.7461 $0.0000 $0.0229 $0.0634 $0.6827 $0.0229
====== ======= ======= ======= ======= ======= =======
Dividends are declared and recorded by each Fund on each day the New York Stock
Exchange is open for business. Dividends are paid monthly on the 27th of the
month or on the preceding business day if the 27th is a weekend or holiday.
Exempt Interest Dividends - The exempt interest portion of dividends paid
represents the distribution of state and municipal bond interest and is exempt
from Federal income taxation.
The table below shows the taxability of dividends and long-term capital gains
paid during the fiscal year ended March 31, 1998:
PER-SHARE AMOUNTS REPORTABLE AS:
---------------------------------------------------------
For Individuals For Corporations
--------------------------- ------------------------------
Record OrdinaryLong-Term Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% RateQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ---------------------------------------
Limited-Term Bond Fund
Class B and Class Y
April 1997 through
March 1998100.00%100.00% ---% ---% ---% 100.00% ---%
Long-Term
Record Exempt Non- Non- Capital
Date Total Interest Exempt Taxable Gain
- -------- --------- -------- ------- ------- --------
Municipal Bond Fund
Class B and Class Y
April through
December
1997 100.00% 98.0765% 1.9235%---% ---%
January through
March
1998 100.00% 97.5847% 2.4153%---% ---%
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Income from Municipal Bond Fund may be subject to the alternative minimum tax.
Shareholders are advised to consult with their tax advisor concerning the tax
treatment of dividends and distributions from all Funds.
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of Waddell & Reed Funds, Inc. Asset Strategy
Fund, Growth Fund, International Growth Fund, Limited-Term Bond Fund, Municipal
Bond Fund and Total Return Fund was held on July 28, 1997. The matters voted
upon by the shareholders and the resulting votes for each matter are presented
below.
Item 1.To elect the Board of Directors;
Broker
For WithheldNon-Votes*
Henry L. Bellmon 19,886,274 546,698 0
Dodds I. Buchanan 19,916,915 516,057 0
James M. Concannon 19,917,428 515,544 0
John A. Dillingham 19,916,208 516,764 0
Linda Graves 19,910,190 522,782 0
John F. Hayes 19,889,979 542,993 0
Glendon E. Johnson 19,893,600 539,372 0
William T. Morgan 19,911,400 521,572 0
Ronald K. Richey 19,905,216 527,756 0
William L. Rogers 19,915,304 517,668 0
Frank J. Ross, Jr. 19,917,428 515,544 0
Eleanor B. Schwartz 19,916,777 516,195 0
Keith A. Tucker 19,908,675 524,297 0
Frederick Vogel III 19,915,154 517,818 0
Paul S. Wise 19,891,894 541,078 0
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
Broker
For Against AbstainNon-Votes*
19,329,963207,214 895,795 0
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 For Municipal Bond Fund only: Elimination of Fundamental
Restriction Regarding Repurchase Transactions
Broker
For Against AbstainNon-Votes*
1,822,130 46,096 101,669 0
3.2 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 649,183 18,129 37,224 0
Growth Fund 5,155,642 128,955 368,687 6,216
International
Growth Fund 2,131,128 28,567 109,354 0
Limited-Term Bond Fund 903,387 33,488 34,169 0
Municipal Bond Fund 1,817,830 50,396 101,669 0
Total Return Fund 8,126,826 177,240 554,882 0
3.3 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 645,120 22,192 37,224 0
Growth Fund 5,152,732 131,865 368,687 6,216
International Growth Fund 2,130,849 28,846 109,354 0
Limited-Term Bond Fund 903,387 33,488 34,169 0
Municipal Bond Fund 1,818,124 50,102 101,669 0
Total Return Fund 8,131,401 172,471 555,076 0
3.4 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 649,632 17,680 37,224 0
Growth Fund 5,159,003 125,594 368,687 6,216
International Growth Fund 2,130,730 28,965 109,354 0
Limited-Term Bond Fund 903,387 33,488 34,169 0
Municipal Bond Fund 1,822,130 46,096 101,669 0
Total Return Fund 8,124,137 179,735 555,076 0
3.5 Elimination of Fundamental Restriction Regarding Investment in
Warrants and Rights (Growth Fund, International Growth Fund,
Limited-Term Bond Fund and Total Return Fund only)
Broker
For Against AbstainNon-Votes*
Growth Fund 5,160,293 124,304 368,687 6,216
International Growth Fund 2,131,128 28,567 109,354 0
Limited-Term Bond Fund 903,387 33,488 34,169 0
Total Return Fund 8,128,040 175,664 555,244 0
3.6 For all Funds (except Asset Strategy Fund): Elimination of
Fundamental Restrictions Regarding Arbitrage Transactions
Broker
For Against AbstainNon-Votes*
Growth Fund 5,158,504 126,093 368,687 6,216
International Growth Fund 2,131,128 28,567 109,354 0
Limited-Term Bond Fund 903,387 33,488 34,169 0
Municipal Bond Fund 1,822,025 46,201 101,669 0
Total Return Fund 8,130,160 173,712 555,076 0
3.7 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 644,988 22,324 37,224 0
Growth Fund 5,156,061 128,524 368,699 6,216
International Growth Fund 2,131,165 28,530 109,354 0
Limited-Term Bond Fund 903,257 33,618 34,169 0
Municipal Bond Fund 1,821,584 46,642 101,669 0
Total Return Fund 8,126,828 177,044 555,076 0
3.8 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
Asset Strategy Fund 650,169 17,143 37,224 0
Growth Fund 5,158,513 125,978 368,793 6,216
International Growth Fund 2,129,575 30,120 109,354 0
Limited-Term Bond Fund 898,677 38,198 34,169 0
Municipal Bond Fund 1,822,025 46,201 101,669 0
Total Return Fund 8,126,057 177,695 555,196 0
Item 4.For Asset Strategy Fund only: To approve or disapprove a change in the
goal of the Fund.
Broker
For Against AbstainNon-Votes*
645,958 17,686 40,892 0
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Michael L. Avery, Vice President
Abel Garcia, Vice President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Thomas A. Mengel, Vice President
Sharon K. Pappas, Vice President and Secretary
Louise D. Rieke, Vice President
Mark G. Seferovich, Vice President
W. Patrick Sterner, Vice President
Russell E. Thompson, Vice President
Daniel J. Vrabac, Vice President
James D. Wineland, Vice President
This report is submitted for the general information of the shareholders of
Waddell & Reed Funds, Inc. It is not authorized for distribution to prospective
investors unless accompanied with or preceded by the Waddell & Reed Funds, Inc.
current prospectus.
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
WADDELL & REED FUNDS, INC.
Total Return Fund
Growth Fund
Science and Technology Fund
International Growth Fund
Asset Strategy Fund
Limited-Term Bond Fund
High Income Fund
Municipal Bond Fund
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FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
WRR3000A(3-98)
printed on recycled paper
