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, 1999
<PAGE>
WADDELL & REED TOTAL RETURN FUND
MANAGERS' LETTER
MARCH 31, 1999
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Total Return Fund for the fiscal
year ended March 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
The U.S. stock market experienced extreme volatility in the past fiscal year.
Serious concerns regarding Japan, Russia and U.S. hedge funds helped trigger a
sharp stock market decline in the period from July to September 1998. Fears of
a spreading financial crisis led to a series of interest rate cuts by several of
the world's central banks and sparked a strong U.S. stock rally that continued
through the first three months of 1999. The U.S. benefited from low global
commodity prices and continued strength in the domestic economy. The U.S.
consumer continues to spend at record levels, resulting in a massive U.S. trade
deficit, but providing critically needed end-market demand for our global
trading partners.
With price to earnings ratios and absolute stock prices near record levels for
many high quality stocks, the Fund has been positioned rather defensively. The
Fund's portfolio is overweighted in household products, cable television, drugs,
medical services, financial services, retailing and utilities. The Fund is also
maintaining meaningful positions in chemical, machinery and automotive stocks
which appear to represent good value in today's market. We are also enhancing
the Fund's yield with some positions in U.S. Treasury securities. We continue
to invest in large capitalization stocks, typically in dividend-paying companies
with dominant market positions in their industries.
The strategies and techniques we applied resulted in the Fund's performance
falling below that of the S&P 500 Index and above 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).
The current high valuations for the major equity indexes appear to fully reflect
the positive factors that characterize the U.S. economic environment: low
inflation, low interest rates, low unemployment and high levels of consumer
confidence. We think 1999 will show only moderate earnings growth. We expect
returns from stocks to be less robust than the exceptional results we have
enjoyed in the past three years. Consumer spending has achieved levels which
will be difficult to maintain in the months ahead. We expect modest GDP growth,
slow earnings growth and more normal results from stocks in the remainder of
1999.
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
03/31/99 27,707 37,490 27,266
===== Total Return Fund, Class B Shares (1) (2) -- $27,707
+++++ The S&P 500 Index (1) -- $37,490
- ----- Lipper Growth & Income Fund Universe Average (1) -- $27,266
(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
3/31/99 4.65% 8.37%
5 Years Ended
3/31/99 18.07% N/A
6+ Years Ended
3/31/99*** 16.81% N/A
Life of
Class Y**** N/A 20.49%
*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 6+ Years).
***9/21/92 (the initial offering date) through 3/31/99
****12/29/95 (the date on which Fund Class Y shares were first acquired by
investors) through 3/31/99.
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, 1999
(Restated to reflect the 100% stock
dividend effected June 26, 1998.)
- ----------------------------------------
DIVIDEND PAID $0.01
=====
CAPITAL GAINS DISTRIBUTION $1.56
=====
NET ASSET VALUE ON
3/31/99 $11.52 adjusted to: $13.08(A)
3/31/98 12.24
------
CHANGE PER SHARE $ 0.84
======
(A)This number includes the capital gains distribution of $1.56 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 4.65% 7.47%
5-year period ended 3-31-99 18.07% 18.07%
Period from 9-21-92*
through 3-31-99 16.81% 16.81%
*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, 1999, Total Return Fund had net assets totaling $509,591,004
invested in a diversified portfolio of:
78.93% Common Stocks
15.40% United States Government Security
5.67% Cash and Cash Equivalents
As a shareholder of Total Return Fund, for every $100 you had invested on March
31, 1999, your Fund owned:
$39.55 Manufacturing Stocks
15.40 United States Government Security
12.78 Transportation, Communication, Electric
and Sanitary Services Stocks
10.13 Finance, Insurance and Real Estate Stocks
9.88 Wholesale and Retail Trade Stocks
5.67 Cash and Cash Equivalents
4.95 Services Stocks
1.64 Mining Stocks
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 0.88%
Gap, Inc. (The) ........................ 66,450 $ 4,472,916
Building Materials and Garden Supplies - 0.85%
Home Depot, Inc. (The) ................. 69,600 4,332,600
Cable and Other Pay Television Services - 2.01%
Cox Communications, Inc., Class A* ..... 135,300 10,232,063
Chemicals and Allied Products - 14.48%
Air Products and Chemicals, Inc. ....... 71,800 2,459,150
Bristol-Myers Squibb Company ........... 89,700 5,768,831
Colgate-Palmolive Company .............. 40,100 3,689,200
du Pont (E.I.) de Nemours and Company .. 133,600 7,757,150
Gillette Company (The) ................. 82,050 4,876,847
Lilly (Eli) and Company ................ 90,000 7,638,750
Merck & Co., Inc. ...................... 70,600 5,661,237
Monsanto Company ....................... 131,800 6,054,562
Novartis, AG (A) ....................... 2,700 4,389,100
PPG Industries, Inc. ................... 34,500 1,768,125
Pfizer Inc. ............................ 40,300 5,591,625
Pharmacia & Upjohn, Inc. ............... 46,600 2,906,675
Procter & Gamble Company (The) ......... 39,600 3,878,325
Warner-Lambert Company ................. 171,300 11,337,919
Total ................................. 73,777,496
Communication - 4.99%
AT&T Corporation ....................... 81,500 6,504,719
AirTouch Communications* ............... 56,000 5,411,000
Level 3 Communications, Inc.* .......... 45,000 3,277,969
MCI WORLDCOM, Inc.* .................... 64,000 5,666,000
SBC Communications Inc. ................ 97,300 4,585,262
Total ................................. 25,444,950
Depository Institutions - 2.18%
Chase Manhattan Corporation (The) ...... 61,000 4,960,062
Citigroup Inc. ......................... 96,450 6,160,744
Total ................................. 11,120,806
Electric, Gas and Sanitary Services - 3.95%
Consolidated Edison, Inc. .............. 94,200 4,268,437
Duke Energy Corp. ...................... 78,300 4,277,138
Republic Services, Inc., Class A* ...... 175,500 2,840,906
Texas Utilities Company ................ 210,300 8,766,881
Total ................................. 20,153,362
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 7.35%
Analog Devices, Inc.* .................. 99,600 $ 2,963,100
General Electric Company ............... 103,100 11,405,438
General Instrument Corporation* ........ 141,400 4,286,187
Intel Corporation ...................... 81,900 9,735,863
Maytag Corporation ..................... 64,700 3,906,262
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 216,500 5,162,172
Total ................................. 37,459,022
Fabricated Metal Products - 2.22%
Lockheed Martin Corporation ............ 220,800 8,321,400
Newell Rubbermaid Inc. ................. 63,300 3,006,750
Total ................................. 11,328,150
Food and Kindred Products - 2.08%
Bestfoods .............................. 86,200 4,051,400
Coca-Cola Company (The) ................ 43,800 2,688,225
Panamerican Beverages Inc., Class A .... 80,900 1,420,806
Ralston-Ralston Purina Group ........... 91,800 2,449,913
Total ................................. 10,610,344
Food Stores - 1.30%
Kroger Co. (The)* ...................... 110,400 6,610,200
General Merchandise Stores - 3.63%
Dayton Hudson Corporation .............. 103,000 6,862,375
Wal-Mart Stores, Inc. .................. 126,200 11,634,063
Total ................................. 18,496,438
Health Services - 1.07%
Tenet Healthcare Corporation* .......... 289,300 5,478,619
Industrial Machinery and Equipment - 4.62%
Case Corporation ....................... 212,400 5,389,650
Cisco Systems, Inc.* ................... 88,800 9,731,925
Deere & Company ........................ 61,000 2,356,125
International Business Machines Corporation 34,200 6,061,950
Total ................................. 23,539,650
Instruments and Related Products - 3.45%
General Motors Corporation, Class H* ... 46,900 2,365,519
Guidant Corporation .................... 142,800 8,639,400
Medtronic, Inc. ........................ 48,600 3,487,050
Raytheon Company, Class A .............. 53,699 3,101,117
Total ................................. 17,593,086
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers - 2.13%
American International Group, Inc. ..... 58,800 $ 7,092,750
Chubb Corporation (The) ................ 63,900 3,742,144
Total ................................. 10,834,894
Miscellaneous Manufacturing Industries - 0.45%
Tyco International Ltd. ................ 32,000 2,296,000
Miscellaneous Retail - 0.87%
Costco Companies, Inc.* ................ 48,500 4,442,297
Motion Pictures - 2.01%
Time Warner Incorporated ............... 121,200 8,612,775
Walt Disney Company (The) .............. 52,200 1,624,725
Total ................................. 10,237,500
Nondepository Institutions - 5.71%
American Express Company ............... 2,500 293,750
Associates First Capital Corporation,
Class A ............................... 158,942 7,152,390
Fannie Mae ............................. 181,200 12,548,100
Freddie Mac ............................ 159,200 9,094,300
Total ................................. 29,088,540
Oil and Gas Extraction - 1.64%
Burlington Resources Incorporated ...... 208,900 8,342,944
Paper and Allied Products - 0.39%
Willamette Industries, Inc. ............ 52,800 1,993,200
Petroleum and Coal Products - 2.20%
Chevron Corporation .................... 28,500 2,520,469
Exxon Corporation ...................... 31,200 2,201,550
Mobil Corporation ...................... 45,200 3,977,600
Royal Dutch Petroleum Company .......... 47,900 2,490,800
Total ................................. 11,190,419
Prepackaged Software - 1.87%
Microsoft Corporation* ................. 106,400 9,532,775
Primary Metal Industries - 0.58%
Alcoa Incorporated ..................... 71,800 2,957,262
Radio and Television Broadcasting - 1.32%
Clear Channel Communications, Inc.* .... 100,100 6,712,956
Security and Commodity Brokers - 0.11%
Morgan Stanley, Dean Witter, Discover
& Co. ................................. 5,600 559,650
Transportation By Air - 0.51%
AMR Corporation* ....................... 44,200 2,588,462
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 1.73%
DaimlerChrysler AG ..................... 45,702 $ 3,921,803
Ford Motor Company ..................... 86,100 4,886,175
Total ................................. 8,807,978
Wholesale Trade - Durable Goods - 1.06%
Johnson & Johnson ...................... 57,900 5,424,506
Wholesale Trade - Nondurable Goods - 1.29%
Safeway Inc.* .......................... 128,000 6,568,000
TOTAL COMMON STOCKS - 78.93% $402,227,085
(Cost: $244,350,027)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITY - 15.40%
United States Treasury,
5.5%, 8-15-2028 (B) ................... $82,000 $ 78,476,460
(Cost: $84,882,612)
SHORT-TERM SECURITIES
Commercial Paper
Depository Institutions - 0.78%
Dresdner U.S. Finance Inc.,
4.86%, 4-7-99 ......................... 4,000 3,996,760
Electric, Gas and Sanitary Services - 0.57%
Commonwealth Edison Co.,
5.03%, 4-6-99 ......................... 2,890 2,887,981
Fabricated Metal Products - 0.51%
Danaher Corporation,
4.9388%, Master Note .................. 285 285,000
Snap-On Inc.,
4.83%, 4-13-99 ........................ 2,300 2,296,297
Total ................................. 2,581,297
Food and Kindred Products - 0.77%
General Mills, Inc.,
4.7938%, Master Note .................. 3,934 3,934,000
Instruments and Related Products - 0.39%
Raytheon Company,
5.05%, 4-1-99 ......................... 2,000 2,000,000
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
TOTAL RETURN FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Paper and Allied Products - 1.96%
Westvaco Corp.,
4.85%, 4-29-99 ........................ $10,000 $ 9,962,278
Personal Services - 0.39%
Block Financial Corp.,
4.84%, 4-20-99 ........................ 2,000 1,994,891
TOTAL SHORT-TERM SECURITIES - 5.37% $ 27,357,207
(Cost: $ 27,357,207)
TOTAL INVESTMENT SECURITIES - 99.70% $508,060,752
(Cost: $356,589,846)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.30% 1,530,252
NET ASSETS - 100.00% $509,591,004
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1999
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Growth Fund for the fiscal year
ended March 31, 1999. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
Over the course of the past fiscal year, we observed several trends that have
become by now entrenched. Most important was a frenzy to own Internet-related
stocks, followed by a flood of initial public offerings in that area. On the
other side, there has been an increase in concern over securities that appear
susceptible to Year 2000 disruptions. Finally, there has been reduced interest
in companies that have annual growth rates of fifteen percent or less, seemingly
because that's inadequate given the enormous opportunity provided by Internet
investments.
Our strategy toward the latter part of the fiscal year has been somewhat
contrarian in that we have sold some of our positions in stocks that have risen
sharply and bought large positions in some stocks that have rapidly declined.
We have also refrained from buying the new Internet IPOs. We have emphasized
buying companies that have exhibited proven 25% growth.
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 do not yet see the catalyst for a big upward move in small company growth
sector. Consequently, we anticipate a continuation of market conditions where
stock selection strategy will be important.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Mark G. Seferovich
Grant P. Sarris
Managers, 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
Small
Growth Company
Fund, Nasdaq Growth Fund
Class B Industrials Universe
Shares Index Average
------- ----------- --------
09/30/92 Purchase 10,000 10,000 10,000
03/31/93 11,771 11,493 11,830
03/31/94 14,497 12,548 13,125
03/31/95 17,775 12,913 14,136
03/31/96 22,497 16,507 18,648
03/31/97 20,029 16,396 19,539
03/31/98 33,122 21,933 28,083
03/31/99 40,279 22,334 23,718
===== Growth Fund, Class B Shares (1) (2) -- $40,279
***** Nasdaq Industrials Index(1) - $22,334
- ----- Lipper Small Company Growth Fund Universe Average (1) -- $23,718
(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
3/31/99 18.61% 22.73%
5 Years Ended
3/31/99 22.68% N/A
6+ Years Ended
3/31/99*** 23.80% N/A
Life of
Class Y **** N/A 21.96%
*Total return for the Class Y shares may be greater than that of the Class B
shares because the Fund's Class Y shares are not subject to a contingent
deferred sales charge and have a lower 12b-1 fee.
**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 6+ Years).
***9/21/92 (the initial offering date) through 3/31/99
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
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, 1999
(Restated to reflect the 100% stock
dividend effected June 26, 1998.)
- -------------------------------------------
CAPITAL GAINS DISTRIBUTION $2.35
=====
NET ASSET VALUE ON
3/31/99 $14.74 adjusted to: $17.09(A)
3/31/98 14.29
------
CHANGE PER SHARE $ 2.80
======
(A)This number includes the capital gains distribution of $2.35 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 18.61% 21.61%
5-year period ended 3-31-99 22.68% 22.68%
Period from 9-21-92*
through 3-31-99 23.80% 23.80%
*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, 1999, Growth Fund had net assets totaling $432,554,316 invested in
a diversified portfolio of:
77.44% Common Stocks
22.56% Cash and Cash Equivalents
As a shareholder of Growth Fund, for every $100 you had invested on March 31,
1999, your Fund owned:
$36.35 Services Stocks
22.56 Cash and Cash Equivalents
16.93 Transportation, Communication, Electric
and Sanitary Services Stocks
15.01 Manufacturing Stocks
8.04 Wholesale and Retail Trade Stocks
1.11 Finance, Insurance and Real Estate Stocks
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations - 2.38%
O'Reilly Automotive, Inc.* ............. 230,000 $ 10,285,313
Building Materials and Garden Supplies - 0.12%
Fastenal Company ....................... 15,000 525,469
Business Services _ 17.76%
America Online, Inc.* .................. 180,000 26,280,000
Eclipsys Corporation* .................. 122,000 2,581,063
FactSet Research Systems, Inc. ......... 169,000 7,309,250
FORE Systems, Inc.* .................... 400,000 7,562,500
Getty Images, Inc.* .................... 286,900 6,015,934
Medical Manager Corporation* ........... 47,000 1,089,812
Primark Corporation* ................... 300,000 6,375,000
Shared Medical Systems Corporation ..... 130,000 7,239,375
USWeb Corporation* ..................... 300,000 12,356,250
Total ................................. 76,809,184
Communication - 11.84%
COLT Telecom Group plc, ADR* ........... 240,000 17,242,500
Intermedia Communications of
Florida, Inc.* ........................ 225,000 6,018,750
Paging Network, Inc.* .................. 1,117,000 5,201,031
RCN Corporation* ....................... 300,000 10,078,125
Western Wireless Corporation, Class A* . 350,000 12,676,562
Total ................................. 51,216,968
Electric, Gas and Sanitary Services - 0.91%
Superior Services, Inc.* ............... 200,000 3,956,250
Electronic and Other Electric Equipment - 2.84%
Broadcom Corporation, Class A* ......... 80,000 4,925,000
Xylan Corporation* ..................... 200,000 7,368,750
Total ................................. 12,293,750
Engineering and Management Services - 2.97%
Incyte Pharmaceuticals, Inc.* .......... 350,000 7,010,938
MAXIMUS, Inc.* ......................... 200,000 5,825,000
Total ................................. 12,835,938
Food and Kindred Products - 2.43%
American Italian Pasta Company,
Class A* .............................. 220,000 5,500,000
Tootsie Roll Industries, Inc. .......... 109,273 5,033,374
Total ................................. 10,533,374
Furniture and Home Furnishings Stores - 0.98%
Williams-Sonoma, Inc.* ................ 150,000 4,237,500
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Health Services - 3.89%
American Healthcorp, Inc.* ............. 500,000 $ 3,828,125
Amsurg Corp., Class A* ................. 118,000 840,750
Amsurg Corp., Class B* ................. 536,809 3,791,213
Concentra Managed Care, Inc.* .......... 575,000 8,355,469
Total ................................. 16,815,557
Industrial Machinery and Equipment - 0.87%
MedE America Corporation* .............. 61,000 1,214,281
Tractor Supply Company* ................ 100,000 2,543,750
Total ................................. 3,758,031
Instruments and Related Products - 2.18%
Lunar Corporation* ..................... 400,000 2,600,000
Maxxim Medical, Inc.* .................. 150,000 2,831,250
STERIS Corporation* .................... 150,000 3,993,750
Total ................................. 9,425,000
Miscellaneous Manufacturing Industries - 4.50%
Blyth Industries, Inc.* ................ 200,000 4,725,000
Racing Champions Corporation* .......... 350,000 3,839,063
Tiffany & Co. .......................... 146,100 10,920,975
Total ................................. 19,485,038
Miscellaneous Retail - 1.30%
MSC Industrial Direct Co., Inc.,
Class A* .............................. 330,000 5,610,000
Paper and Allied Products - 0.70%
IVEX Packaging Corporation* ............ 200,000 3,037,500
Personal Services - 1.31%
Block (H&R), Inc. ...................... 120,000 5,685,000
Prepackaged Software - 10.42%
Cerner Corporation* .................... 265,000 4,240,000
Citrix Systems, Inc.* .................. 130,000 4,948,125
Dendrite International, Inc.* .......... 300,000 6,778,125
Intuit Inc.* ........................... 175,000 17,800,782
Learning Company, Inc. (The)* .......... 160,000 4,640,000
Transaction Systems Architects,
Inc., Class A* ........................ 185,000 6,665,781
Total ................................. 45,072,813
Radio and Television Broadcasting - 1.16%
Emmis Broadcasting Corporation* ........ 100,000 4,996,875
Railroad Transportation - 1.32%
Kansas City Southern Industries, Inc. .. 100,000 5,700,000
Real Estate - 1.11%
Stewart Enterprises, Inc., Class A ..... 300,000 4,809,375
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Stone, Clay and Glass Products - 1.49%
Gentex Corporation* .................... 300,000 $ 6,468,750
Transportation by Air - 1.70%
Midwest Express Holdings, Inc.* ........ 250,000 7,343,750
Wholesale Trade - Durable Goods - 2.35%
Department 56, Inc.* ................... 240,000 7,305,000
OmniCare, Inc. ......................... 150,000 2,859,375
Total ................................. 10,164,375
Wholesale Trade - Nondurable Goods - 0.91%
NCS Healthcare, Inc., Class A* ......... 321,500 3,918,281
TOTAL COMMON STOCKS - 77.44% $334,984,091
(Cost: $217,654,376)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 3.00%
Monsanto Company,
4.86%, 4-16-99 ........................ $13,000 12,973,675
Communication - 4.62%
BellSouth Telecommunications, Inc.,
4.84%, 4-6-99 ......................... 10,000 9,993,278
Dominion Resources, Inc.,
5.0%, 4-21-99 ......................... 10,000 9,972,222
Total ................................. 19,965,500
Electric, Gas and Sanitary Services - 2.88%
National Fuel Gas Co.,
4.9%, 4-7-99 .......................... 8,250 8,243,263
Western Resources, Inc.,
5.02%, 4-18-99 ........................ 4,200 4,195,900
Total ................................. 12,439,163
Fabricated Metal Products - 0.06%
Danaher Corporation,
4.9388%, Master Note .................. 267 267,000
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
GROWTH FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Food and Kindred Products - 3.87%
ConAgra, Inc.,
5.0%, 4-8-99 .......................... $ 3,000 $ 2,997,083
General Mills, Inc.,
4.7938%, Master Note .................. 8,477 8,477,000
Ralston Purina Co.,
5.02%, 4-9-99 ......................... 5,265 5,259,127
Total ................................. 16,733,210
Industrial Machinery and Equipment - 1.85%
United Technologies Corp.,
4.85%, 4-5-99 ......................... 8,000 7,995,689
Instruments and Related Products - 2.08%
Raytheon Company,
5.05%, 4-1-99 ......................... 9,000 9,000,000
Personal Services - 0.92%
Block Financial Corp.,
4.84%, 4-20-99 ........................ 4,000 3,989,782
Transportation Equipment - 0.85%
Dana Corporation,
5.05%, 4-20-99 ........................ 3,700 3,690,138
Total Commercial Paper - 20.13% 87,054,157
Municipal Obligations - 2.08%
Louisiana
Gulf Coast Industrial Development Authority,
Environmental Facilities Revenue Bonds
(CITGO Petroleum Corporation Project), Taxable
Series 1998 (Royal Bank of Canada),
4.96%, 6-2-99 ......................... 9,000 9,000,000
TOTAL SHORT-TERM SECURITIES - 22.21% $ 96,054,157
(Cost: $96,054,157)
TOTAL INVESTMENT SECURITIES - 99.65% $431,038,248
(Cost: $313,708,533)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.35% 1,516,068
NET ASSETS - 100.00% $432,554,316
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED SCIENCE AND TECHNOLOGY FUND
MANAGER'S LETTER
MARCH 31, 1999
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Science and Technology Fund for the
fiscal year ended March 31, 1999. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
The economy remained strong and inflation subdued during the past fiscal year.
Consumer spending remained healthy, with strong demand for autos and housing,
and excellent retail sales. Consumer spending has been driven somewhat by the
wealth effect, as the stock and bond markets have provided consumers with more
cash for purchases. There were signs that the Asian contagion is subsiding and
European markets have responded to the lower prevailing interest rates. The
American economy remains the globe's primary growth engine.
The Fund had an outstanding year, led primarily by its Internet-related
holdings. The Fund also benefited from investments in initial public offerings.
Fund holdings in the following areas contributed positively to performance:
networking, software for web development, telecommunications and related
services, drug industry, hospital supply and distribution, medical devices and
the cable industry. The market capitalizations of the largest Internet players
have grown so large that they and others are forcing consolidation of the medium
and smaller companies. The biggest players are buying the smaller ones that
complement their business strategies. Normally, when one large company acquires
another very expensive company, the acquiring company's stock price goes down.
In the case of Internet stocks, however, prices of both buyer and seller have
typically advanced because investors can see synergies that seem to enhance
growth potential substantially.
The strategies and techniques we applied resulted in the Fund significantly
outperforming the S&P 400 Index and falling modestly below the Lipper Science
and Technology Fund Universe Average, 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 Fund's performance was aided by large advances of
Internet stocks, fewer earnings disappointments among the Fund's major holdings
and little, if any, Asian or Latin American exposure.
We still believe profit forecasts are too high, given the prevailing lack of
pricing flexibility and profit margin expansion. The U.S. economy is the
world's strongest, but we are not sure if it can continue to pull the rest of
the world out of its slump. Interest rates, however, should remain low and not
a threat. American companies must remain competitive since foreign companies
with weaker currencies can undercut American prices in the marketplace. We
expect to keep diversifying into U.S. based equities with less foreign earnings
risk. Depending on market conditions, we may increase cash reserves if we feel
the market has peaked, or lower cash reserves if stocks, as an asset class, are
generally cheaper than bonds or alternative investments.
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
03/31/98 12,010 10,587 10,650
3/31/99 17,450 12,975 16,348
===== Science and Technology Fund, Class B Shares(1) - $17,450
+++++ S&P 400 Index - $12,975
***** Lipper Science and Technology Fund Universe Average - $16,348
(1) 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
3/31/99 42.30% N/A
1+ Years Ended
3/31/99*** 38.24% N/A
Aggregate Total
Return for
Life of Class Y ****N/A 44.67%
*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 2% (1+ years).
***7/31/97 (the initial offering date) through 3/31/99
****6/9/98 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
<PAGE>
SHAREHOLDER SUMMARY
- ------------------------------------------------------------------------
SCIENCE AND TECHNOLOGY FUND
PORTFOLIO STRATEGY:
Technology-related OBJECTIVE: Long-term capital growth through
stocks investments primarily in science and
technology securities.
Generally at least 80% STRATEGY: Invests primarily 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 Fiscal Year Ended March 31, 1999
- --------------------------------------
NET ASSET VALUE ON
3/31/99 $17.45
3/31/98 12.01
------
CHANGE PER SHARE $ 5.44
======
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 3-31-99 42.30% 45.30%
Period from 7-31-97*
through 3-31-99 38.24% 39.69%
*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, 1999, Science and Technology Fund had net assets totaling
$44,424,382 invested in a diversified portfolio of:
77.06% Common Stocks
22.94% Cash and Cash Equivalents
As a shareholder of Science and Technology Fund, for every $100 you had invested
on March 31, 1999, your Fund owned:
$51.74 Services Stocks
22.94 Cash and Cash Equivalents
16.46 Manufacturing Stocks
7.97 Transportation, Communication, Electric, Gas
and Sanitary Services Stocks
0.89 Wholesale and Retail Trade Stocks
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Business Services - 29.87%
Amazon.com, Inc.* ...................... 7,000 $ 1,204,875
America Online, Inc.* .................. 12,800 1,868,800
BroadVision, Inc.* ..................... 20,000 1,196,875
DoubleClick Inc.* ...................... 7,000 1,274,656
EarthLink Network, Inc.* ............... 7,000 420,656
eBay Inc.* ............................. 4,500 617,766
Fiserv, Inc.* .......................... 8,000 428,500
Inktomi Corporation* ................... 13,000 1,113,125
Macromedia, Inc.* ...................... 10,000 453,125
MemberWorks Incorporated* .............. 18,400 665,850
MiningCo.com, Inc.* .................... 7,500 671,250
pcOrder.com, Inc.* ..................... 6,000 340,500
TMP Worldwide Inc.* .................... 12,000 778,125
Teradyne, Inc.* ........................ 7,000 381,937
USWeb Corporation* ..................... 14,000 576,625
Wind River Systems, Inc.* .............. 15,000 266,719
Yahoo! Inc.* ........................... 6,000 1,009,125
Total ................................. 13,268,509
Cable and Other Pay Television Services - 2.79%
Cox Communications, Inc., Class A* ..... 8,000 605,000
MediaOne Group, Inc.* .................. 10,000 635,000
Total ................................. 1,240,000
Communication - 4.12%
COLT Telecom Group plc, ADR* ........... 8,000 574,750
Intermedia Communications of Florida,
Inc.* ................................. 15,000 401,250
Level 3 Communications, Inc.* .......... 9,000 655,594
MGC Communications, Inc.* .............. 20,000 197,500
Total ................................. 1,829,094
Educational Services - 0.76%
ITT Educational Services, Inc.* ........ 9,000 338,063
Electronic and Other Electric Equipment - 12.14%
Ascend Communications, Inc.* ........... 7,000 586,031
Broadcom Corporation, Class A* ......... 15,000 923,438
Concord Communications, Inc.* .......... 12,000 677,625
EchoStar Communications Corporation,
Class A* .............................. 6,000 489,000
Gemstar International Group Limited* ... 12,000 901,500
Micron Technology, Inc.* ............... 13,000 627,250
Nokia Corporation, Series A, ADR ....... 2,600 404,950
Tellabs* ............................... 8,000 782,000
Total ................................. 5,391,794
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Engineering and Management Services - 7.06%
Abacus Direct Corporation* ............. 10,000 $ 820,000
Incyte Pharmaceuticals, Inc.* .......... 20,000 400,625
MAXIMUS, Inc.* ......................... 15,000 436,875
Paychex, Inc. .......................... 16,000 759,500
Quintiles Transnational Corp.* ......... 10,000 375,625
Whittman-Hart, Inc.* ................... 16,000 345,000
Total ................................. 3,137,625
Food and Kindred Products - 1.01%
American Italian Pasta Company, Class A* 18,000 450,000
Health Services - 0.34%
American Healthcorp, Inc.* ............. 20,000 153,125
Instruments and Related Products - 3.31%
STERIS Corporation* .................... 12,000 319,500
Uniphase Corporation* .................. 10,000 1,149,375
Total ................................. 1,468,875
Prepackaged Software - 13.71%
Allaire Corporation* ................... 10,000 679,375
Bottomline Technologies (de), Inc.* .... 13,000 830,375
Citrix Systems, Inc.* .................. 26,000 989,625
HNC Software Inc.* ..................... 20,000 655,625
Intuit Inc.* ........................... 8,000 813,750
ONYX Software Corporation* ............. 15,000 592,500
Transaction Systems Architects, Inc.,
Class A*............................... 10,000 360,313
Vignette Corporation* .................. 10,000 746,875
Visio Corporation* ..................... 15,000 420,937
Total ................................. 6,089,375
Radio and Television Broadcasting - 1.06%
Clear Channel Communications, Inc.* .... 7,000 469,437
Wholesale Trade -- Nondurable Goods - 0.89%
Cardinal Health, Inc. .................. 6,000 396,000
TOTAL COMMON STOCKS - 77.06% $34,231,897
(Cost: $22,191,829)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Engineering and Management Services - 7.63%
Halliburton Co.,
4.84%, 4-21-99 ........................ $3,400 3,390,858
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
SCIENCE AND TECHNOLOGY FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Fabricated Metal Products - 3.52%
Danaher Corporation,
4.9388%, Master Note .................. $1,565 $ 1,565,000
Food and Kindred Products - 4.18%
General Mills, Inc.,
4.7938%, Master Note .................. 1,855 1,855,000
Instruments and Related Products - 5.63%
Raytheon Company,
5.05%, 4-1-99 ......................... 2,500 2,500,000
TOTAL SHORT-TERM SECURITIES - 20.96% $ 9,310,858
(Cost: $9,310,858)
TOTAL INVESTMENT SECURITIES - 98.02% $43,542,755
(Cost: $31,502,687)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.98% 881,627
NET ASSETS - 100.00% $44,424,382
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED INTERNATIONAL GROWTH FUND
MANAGER'S LETTER
MARCH 31, 1999
- -----------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the International Growth Fund for the
fiscal year ended March 31, 1999. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
Global markets were extremely volatile during the last fiscal year. Asia
struggled with the world's most serious post-War financial crisis, while Japan
made little progress on economic reform. Europe remained in economic expansion
as companies continued to implement restructuring programs and extend operations
across Europe to benefit from the move to a single currency. The successful
introduction of the Euro on January 1, 1999, encouraged further corporate
restructuring throughout Europe. Benign global inflation allowed broad interest
rate cuts late in 1998, which boosted equity flows.
The Fund's portfolio remained heavily weighted in European equities, which we
felt were less exposed to fundamental risk. We increased our weighting in Japan
as investors became more optimistic about corporate reform, but remained
underweighted relative to the Fund's benchmark. We maintained our cautious
stance toward emerging markets because of serious fundamental risk in this area.
We temporarily increased our cash reserves during periods of extreme risk during
the Asian financial crisis.
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 Capital International
E.A.FE. Index), and the universe of funds with similar investment objectives
(the Lipper International Fund Universe Average).
Benign inflation suggests financial markets will enjoy further global monetary
easing. Our positive outlook on Europe has been further supported by the
successful introduction of the Euro. We continue to monitor Japan's attitude
toward financial and corporate reform. Investor confidence has improved for
Latin American markets, but there is risk of further instability in emerging
markets where high debt and overvalued assets remain obstacles to recovery. We
plan to continue our emphasis on Europe, with a focus on companies that have
positioned themselves to benefit from the move toward economic integration. We
will maintain our cautious approach toward emerging markets and Japan until
there is clear evidence of a sustained recovery in investor confidence. The
Asian financial crisis should eventually force important reforms and hopefully
lead to an economic recovery in this important region of the world.
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
03/31/99 20,378 20,060 20,038
===== International Growth Fund, Class B (2) (3) -- $20,378
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(2)
- - $20,060
*-*-* Lipper International Fund Universe Average(2) - $20,038
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
03/31/99 19,797 13,817 14,496
===== International Growth Fund, Class B (3) (4) -- $19,797
***** Morgan Stanley Capital International E.A.FE. Index (with net dividends)(4)
- - $13,817
*-*-* Lipper International Fund Universe Average(4) - $14,496
(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.
<PAGE>
Average Annual Total Return*
Class B** Class Y
-----------------------------
Year Ended
3/31/99 7.36% 11.41%
5 Years Ended
3/31/99 15.80% N/A
6+ Years Ended
3/31/99*** 11.73% N/A
Life of
Class Y **** N/A 23.00%
*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 6+ Years).
***9/21/92 (the initial offering date) through 3/31/99
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
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 as its
foreign securities. Not primary objective and realization
more than 75% in securities of income as its secondary
in any one country. objective.
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.
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, 1999
- -------------------------------------------
CAPITAL GAINS DISTRIBUTION $0.94
=====
NET ASSET VALUE ON
3/31/99 $15.58 adjusted to: $16.52(A)
3/31/98 15.04
------
CHANGE PER SHARE $ 1.48
======
(A)This number includes the capital gains distribution of $0.94 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 7.36% 10.36%
5-year period ended 3-31-99 15.80% 15.80%
Period from 9-21-92*
through 3-31-99 11.73% 11.73%
*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, 1999, International Growth Fund had net assets totaling
$100,393,156 invested in a diversified portfolio of:
93.28% Common Stocks
3.54% Preferred Stocks
3.18% Cash and Cash Equivalents
As a shareholder of International Growth Fund, for every $100 you had invested
on March 31, 1999, your Fund owned:
$93.28 Common Stocks
3.54 Preferred Stocks
3.18 Cash and Cash Equivalents
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Australia - 0.73%
LibertyOne Limited (A)* ................ 1,050,360 $ 732,868
Bermuda - 0.63%
ESG Re Limited ......................... 40,000 633,750
Brazil - 0.14%
CompanLia de Saneamento Desico do Estado
De Sao Paulo (A) ...................... 2,200,000 138,213
China - 0.12%
Jinpan International Limited* .......... 57,000 121,125
Finland - 5.78%
Nokia Corporation, Series A (A) (C) .... 10,000 1,611,622
Sonera Group plc (A)* .................. 97,000 1,614,648
TT Tieto Oy, Class B (A) ............... 42,000 1,731,926
Teleste OY (A) (C)* .................... 94,000 848,398
Total ................................. 5,806,594
France - 13.01%
AXA-UAP (A) ............................ 10,000 1,327,345
Alcatel Alsthom Compagnie Generale
d'Electricite (A) ..................... 8,000 920,927
ALTRAN TECHNOLOGIES (A) ................ 5,100 1,295,459
Credit Commercial de France (A) ........ 10,800 997,519
Dassault Systemes S.A. (A) ............. 10,789 400,001
Dexia France (A) ....................... 4,850 678,886
Elf Acquitaine (A) ..................... 7,800 1,060,622
Generale de Geophysique S.A. (A)* ...... 4,500 167,810
Lagardere SCA (A) ...................... 17,500 569,175
Societe Generale, Class A (A) .......... 6,450 1,240,981
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 1,875 423,578
Suez Lyonnaise des Eaux (A) ............ 11,613 2,151,497
Unilog SA (A) .......................... 1,791 901,158
VIVENDI (A) ............................ 3,775 929,923
Total ................................. 13,064,881
Germany - 9.65%
Altana AG (A) .......................... 5,400 352,255
Augusta Beteiligungs AG (A)* ........... 12,600 863,466
Deutsche Prandbrief- und
Hypothekenbank AG (A) ................. 9,750 863,653
LHS Group Inc. (A)* .................... 17,000 488,783
Linde AG (A) ........................... 1,380 789,079
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Germany (Continued)
Ludwig Beck am Rathauseck-Textilhaus
Feldmeier AG, Ordinary Bearer
Shares (A) (C)* ....................... 25,000 $ 405,338
Mannesmann AG (A) ...................... 20,000 2,557,409
PrimaCom AG, ADR* ...................... 43,075 753,813
Rhoen-Klinikum AG (A) .................. 10,773 1,187,743
SCM Microsystems, Inc. (A)* ............ 10,000 605,304
Teleplan International N.V. (A)* ....... 12,415 815,898
Total ................................. 9,682,741
Greece - 2.50%
Alpha Credit Bank (A) .................. 10,000 1,329,579
Panafon Hellenic Telecommunications
Company S.A. (A)* ..................... 22,775 592,195
Panafon Hellenic Telecommunications
Company S.A. (A) (C)* ................. 22,800 592,845
Total ................................. 2,514,619
Italy - 7.92%
Banca Commerciale Italiana SpA (A) ..... 131,000 1,076,144
Banca Popolare di Bergamo - Credito
Varesino (A) .......................... 15,900 403,878
Class Editori S.p.A. (A)* .............. 184,500 1,639,282
Istituto Bancario San Paolo di
Torino - Istituto Mobiliare
Italiano S.p.A. (A) ................... 52,500 854,046
Seat-Pagine Gialle S.p.A. (A) .......... 2,300,000 1,839,692
Telecom Italia Mobile S.p.A., Risp (A) . 200,000 1,188,990
TELECOM ITALIA S.p.A., Ordinary
Shares (A) ............................ 89,300 949,800
Total ................................. 7,951,832
Japan - 11.23%
Bank of Tokyo-Mitsubishi, Ltd. (The) (A) 70,000 964,173
Benesse Corporation (A) ................ 11,600 936,929
Keyence Corporation (A) ................ 7,400 1,105,456
Matsushita Communication Industrial
Co., Ltd. (A) ......................... 15,000 1,014,052
NTT Mobile Communications Network,
Inc. (A) .............................. 24 1,184,960
Nichiei Co., Ltd. (A) .................. 12,200 1,092,476
Nippon Telegraph and Telephone
Corporation (A) ....................... 100 979,027
Olympus Optical Co., Ltd. (A) .......... 77,000 1,013,799
PROMISE Co., Ltd. (A) .................. 28,100 1,484,627
ROHM CO., LTD. (A) ..................... 8,500 1,015,107
Sanwa Bank, Ltd. (The) (A) ............. 45,000 488,036
Total ................................. 11,278,642
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Mexico - 0.61%
Grupo Financiero Banamex-Accival S.A.(A)* 280,000 $ 609,144
Netherlands - 7.29%
ASR Verzekeringsgroep N.V. (A) ......... 7,500 555,312
Athlon Groep N.V. (A) .................. 7,000 184,239
Benckiser N.V., Class B (A) ............ 21,200 1,190,438
Cap Gemini N.V. (A) .................... 15,000 800,136
EQUANT N.V. (A)* ....................... 27,241 2,072,914
Ordina N.V. (A)* ....................... 56,160 1,481,162
Unique International NV (A) ............ 35,702 1,032,290
Total ................................. 7,316,491
Norway - 1.28%
Blom ASA (A) ........................... 60,000 156,964
Merkantildata ASA (A) .................. 125,000 1,125,105
Total ................................. 1,282,069
Portugal - 1.52%
Ibersol SGPS SA (A) .................... 8,000 724,981
Portugal Telecom, S.A., ADS ............ 18,300 801,769
Total ................................. 1,526,750
Spain - 4.29%
Abengoa SA (A) ......................... 45,000 1,271,463
Tele Pizza, S.A. (A)* .................. 217,080 1,658,917
Telefonica de Espana, S.A. (A) ......... 32,361 1,374,325
Total ................................. 4,304,705
Sweden - 1.71%
Biora AB (A)* .......................... 40,000 280,061
Ortivus AB, B Shares (A)* .............. 59,750 407,428
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 43,300 1,032,434
Total ................................. 1,719,923
Switzerland - 2.09%
Choco Lindt & Spru AG, Registered (A) .. 20 568,720
Julius Baer Holding AG (A) ............. 240 779,797
Swisslog Holding AG, Registered
Shares (A) ............................ 6,565 748,952
Total ................................. 2,097,469
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
United Kingdom - 19.42%
Allied Zurich p.l.c. (A)* .............. 93,000 $ 1,254,284
CMG plc (A) ............................ 20,250 574,022
Cable & Wireless Communications plc (A)* 100,000 1,130,640
Capita Group plc (The) (A) ............. 117,000 1,349,306
COLT Telecom Group plc, ADR* ........... 50,000 3,592,188
Computacenter plc (A) (C)* ............. 72,000 657,063
Energis plc (A)* ....................... 56,100 1,558,539
Misys plc (A) .......................... 209,740 2,127,489
Orange plc (A)* ........................ 69,500 972,140
PizzaExpress plc (A) ................... 50,000 713,918
Select Appointments (Holdings) Public
Limited Company (A) ................... 59,000 792,869
Sema Group plc (A) ..................... 102,572 1,153,093
Telewest Communications plc (A) (C)* ... 172,000 744,543
Telewest Communications plc (A)* ....... 228,000 986,952
Vodafone Group Plc (A) ................. 101,450 1,884,413
Total ................................. 19,491,459
United States - 3.36%
Global TeleSystems Group, Inc.* ........ 17,700 989,541
MetroNet Communications Corp., Class B* 43,400 2,387,000
Total ................................. 3,376,541
TOTAL COMMON STOCKS - 93.28% $ 93,649,816
(Cost: $72,776,167)
PREFERRED STOCKS
Germany - 2.46%
GEA AG (A) ............................. 30,000 599,900
Marschollek, Lautenschlager und
Partner AG (A) ........................ 2,500 1,353,827
Moebel Walther AG (A) .................. 30,000 515,589
Total ................................. 2,469,316
Portugal _ 1.08%
Lusomundo-SGPS, S.A. (A) ............... 100,000 1,080,900
TOTAL PREFERRED STOCKS - 3.54% $3,550,216
(Cost: $3,071,329)
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
INTERNATIONAL GROWTH FUND
MARCH 31, 1999
Value
TOTAL SHORT-TERM SECURITIES - 3.77% $ 3,784,570
(Cost: $3,784,570)
TOTAL INVESTMENT SECURITIES - 100.59% $100,984,602
(Cost: $79,632,066)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.59%) (591,446)
NET ASSETS - 100.00% $100,393,156
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED ASSET STRATEGY FUND
MANAGERS' LETTER
- -----------------------------------------------------------------
MARCH 31, 1999
Dear Shareholder:
This report relates to the operation of the Asset Strategy Fund for the
fiscal year ended March 31, 1999. The discussion, graphs and tables
contained in this report will provide you with information regarding the
Fund's performance during that period.
The past fiscal year was characterized by extreme movements in asset prices
around the world. Heading into the summer of 1998, stock prices were near all-
time highs, emerging markets were stable, and it appeared that Japan would begin
seriously addressing its economic problems. However, by late July, Russia
defaulted on certain types of debt, markets around the globe began to crumble
and liquidity worldwide dried up almost overnight. When the rapid decline in
securities prices resulted in the collapse of a high profile hedge fund, the
Federal Reserve came to the rescue by lowering interest rates three times over a
short period. This action by the Fed restored confidence to markets and averted
catastrophe. Perhaps even more amazing than the market decline from August to
October was the rebound that started in November and continued through the end
of the fiscal year. The suddenness of the rebound in stock prices in the U.S.,
as measured by the popular indexes, and the subsequent sell-off of Treasury
bonds was at least as dramatic as the prior crash. However, the stock market
rally was not broad-based, as the bulk of the advances were attributable to the
top 50 stocks in the S&P 500 and Internet and technology stocks. On the fixed
income side, emerging market and high grade bonds still have not fully recovered
to their pre-Russian default levels.
In the spring, the decision was made to sell all the Fund's emerging market
holdings and invest only in U.S. Treasuries due to the extreme volatility and
uncertainty prevailing in the markets. This strategy worked well until the
third Fed rate cut triggered a sudden turnaround in market confidence and a flow
of money out of Treasuries and into equities. Although concerned about the
impact of Asia on global growth, the equity market sentiment had improved enough
to warrant an increased exposure in U.S. equities to about 50% at the beginning
of the fiscal year. We concentrated on domestic companies with little exposure
to Asia, stocks that benefited from lower interest rates and firms with high
earnings growth visibility relative to the market. By August, concerns over a
global liquidity crisis caused us to reduce equity exposure and move to more
defensive groups.
The strategies and techniques we applied resulted in the Fund's overall
performance remaining below that of the indexes charted on the following page.
Those indexes reflect the performance of securities that generally represent the
stock market (the S&P 500 Index), 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 Debt 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 Fund's low exposure to stocks during the market rally that began
in the fourth quarter of 1998.
There is concern that the U.S. economy may slow in 1999. Many areas of the
world are experiencing economic slowing, with some countries in deep recession.
Therefore, we expect to remain in a defensive mode. As a result of our
continued concern over market volatility, liquidity and diminished investor
confidence, we intend to begin the next fiscal year with the Fund's portfolio
weighted more heavily in fixed income securities and less emphasis on stocks
until signs appear that the global economy is stabilizing. We expect to
maintain a significant weighting in U.S. Treasuries as a hedge against a
possible broad stock market decline.
Thank you for your continued confidence.
Respectfully,
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
03/31/99 12,987 28,330 13,682 12,406 17,008
==== Asset Strategy Fund, Class B Shares (1)(2) -- $12,987
++++ The S&P 500 Index (1) -- $28,330
-+-+-+ Salomon Brothers Broad Investment Grade Debt Index (1) -- $13,682
*--*-- Salomon Brothers Short-Term Index for 1 Month Certificates of
Deposit (1) -- $12,406
---- Lipper All Flexible Portfolio Funds Universe Average (1) --
$17,008
(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
3/31/99 -1.15% 2.75%
3+ Years Ended
3/31/99*** 6.63% N/A
Life of Class Y ****N/A 8.19%
*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% (3+ Years).
***4/20/95 (the initial offering date) through 3/31/99
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
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, 1999
- ----------------------------------------
DIVIDENDS PAID $0.16
=====
CAPITAL GAINS DISTRIBUTION $0.26
=====
NET ASSET VALUE ON
3/31/99 $11.20 adjusted to: $11.46(A)
3/31/98 11.42
------
CHANGE PER SHARE $ 0.04
======
(A)This number includes the capital gains distribution of $0.26 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 -1.15% 1.79%
Period from 4-20-95*
through 3-31-99 6.63% 6.84%
*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, 1999, Asset Strategy Fund had net assets totaling $30,779,810
invested in a diversified portfolio of:
49.74% Common Stocks
43.06% United States Government Securities
6.29% Cash and Cash Equivalents
0.91% Corporate Debt Security
As a shareholder of Asset Strategy Fund, for every $100 you had invested on
March 31, 1999, your Fund owned:
$49.74 Common Stocks
43.06 United States Government Securities
6.29 Cash and Cash Equivalents
0.91 Corporate Debt Security
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Business Services - 0.89%
Teradyne, Inc.* ........................ 5,000 $ 272,812
Chemicals and Allied Products - 9.60%
Bristol-Myers Squibb Company ........... 7,500 482,344
du Pont (E.I.) de Nemours and Company .. 7,800 452,887
Forest Laboratories, Inc.* ............. 5,800 326,975
Merck & Co., Inc. ...................... 5,200 416,975
Pharmacia & Upjohn, Inc. ............... 5,600 349,300
Procter & Gamble Company (The) ......... 4,800 470,100
Warner-Lambert Company ................. 6,900 456,694
Total ................................. 2,955,275
Cable and Other Pay Television Services - 2.18%
Cox Communications, Inc., Class A* ..... 4,500 340,312
TCA Cable TV, Inc. ..................... 7,600 330,363
Total ................................. 670,675
Communication - 1.14%
Bell Atlantic Corporation .............. 6,800 351,475
Eating and Drinking Places - 1.20%
Wendy's International, Inc. ............ 13,000 369,688
Electronic and Other Electric Equipment - 6.19%
Analog Devices, Inc.* .................. 10,300 306,425
EchoStar Communications Corporation,
Class A* .............................. 5,200 423,800
Gemstar International Group Limited* ... 5,000 375,625
Intel Corporation ...................... 4,300 511,162
Micron Technology, Inc.* ............... 6,000 289,500
Total ................................. 1,906,512
Fabricated Metal Products - 1.99%
Fortune Brands, Inc. ................... 11,200 433,300
Newell Rubbermaid Inc. ................. 3,800 180,500
Total ................................. 613,800
Food and Kindred Products - 1.42%
Ralston-Ralston Purina Group ........... 16,400 437,675
Industrial Machinery and Equipment - 2.01%
Applied Materials, Inc.* ............... 5,200 320,938
Case Corporation ....................... 11,700 296,887
Total ................................. 617,825
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS
Instruments and Related Products - 4.34%
Baxter International Inc. .............. 4,300 $ 283,800
Guidant Corporation .................... 5,400 326,700
KLA-Tencor Corporation* ................ 5,300 257,547
Raytheon Company, Class B .............. 8,000 469,000
Total ................................. 1,337,047
Motion Pictures - 2.64%
AT&T Corp. - Liberty Media Group,
Class A* .............................. 6,100 321,013
Time Warner Incorporated ............... 6,900 490,331
Total ................................. 811,344
Prepackaged Software - 2.62%
Microsoft Corporation* ................. 9,000 806,344
Primary Metal Industries - 0.99%
USX Corporation - U.S. Steel Group ..... 12,900 303,150
Radio and Television Broadcasting - 1.18%
Clear Channel Communications, Inc.* .... 5,400 362,138
Stone, Clay and Glass Products - 1.38%
Gentex Corporation* .................... 19,700 424,781
Transportation By Air - 2.46%
Northwest Airlines Corporation,
Class A* .............................. 11,100 308,372
Southwest Airlines Co. ................. 14,800 447,700
Total ................................. 756,072
Transportation Equipment - 4.06%
Ford Motor Company ..................... 5,200 295,100
General Motors Corporation ............. 5,200 451,750
Newport News Shipbuilding Inc. ......... 15,900 503,831
Total ................................. 1,250,681
Trucking and Warehousing - 1.34%
CNF Transportation Inc. ................ 10,900 412,156
Wholesale Trade - Durable Goods - 1.16%
Johnson & Johnson ...................... 3,800 356,013
Wholesale Trade - Nondurable Goods - 0.95%
U.S. Foodservice* ...................... 6,300 292,950
TOTAL COMMON STOCKS - 49.74% $15,308,413
(Cost: $13,473,620)
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
ASSET STRATEGY FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITY - 0.91%
Petroleum and Coal Products
Petroleos Mexicanos (Daily Adjusted Yield
Securities (DAYS)),
9.85689%, 7-15-2005 ................... $ 300 $ 279,750
(Cost: $277,500)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Banks:
6.2%, 2-27-2004 ....................... 300 299,976
6.02%, 3-30-2006 ...................... 300 294,843
United States Treasury:
7.125%, 2-29-2000 ..................... 60 61,181
5.625%, 12-31-2002 .................... 4,900 4,971,197
7.5%, 2-15-2005 ....................... 60 66,515
5.875%, 11-15-2005 .................... 1,250 1,284,375
6.125%, 8-15-2007 .................... 4,050 4,239,824
5.625%, 5-15-2008 ..................... 2,000 2,035,940
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 43.06% $13,253,851
(Cost: $13,377,295)
SHORT-TERM SECURITIES
Commercial Paper
Fabricated Metal Products - 2.85%
Danaher Corporation,
4.9388%, Master Note .................. 878 878,000
Food and Kindred Products - 2.47%
General Mills, Inc.,
4.7938%, Master Note .................. 760 760,000
TOTAL SHORT-TERM SECURITIES - 5.32% $ 1,638,000
(Cost: $1,638,000)
TOTAL INVESTMENT SECURITIES - 99.03% $30,480,014
(Cost: $28,766,415)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.97% 299,796
NET ASSETS - 100.00% $30,779,810
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED LIMITED-TERM BOND FUND
MANAGER'S LETTER
MARCH 31, 1999
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Limited-Term Bond Fund for the
fiscal year ended March 31, 1999. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
Interest rates fell sharply during the first half of the last fiscal year as
global deflationary pressures intensified. The economies of Asia were weaker
than most expected and the impact on the global economy more severe. With U.S.
Treasury securities considered the safest and most secure of all investments, a
_flight to quality_ into Treasuries began in August of last year. This
coincided with the Russian debt crisis and the collapse of a large hedge fund.
Three short-term interest rate cuts by the Federal Reserve eventually stabilized
the markets. As investors sold riskier securities to purchase Treasuries, the
yield differential between Treasuries and other fixed income investments widened
substantially. Beginning in October of last year, interest rates moved sharply
higher, fueled by stronger-than-expected economic growth. This growth renewed
fears that the Federal Reserve may tighten monetary policy in order to avoid
possible inflationary pressures. Other factors causing concern for the fixed
income markets included the widening trade deficit, rising oil prices and
stabilized commodity prices. Major stock market averages are also hitting new
highs which may be funneling money out of bonds and into stocks.
The Fund was overweighted in both corporate and mortgage-backed securities last
year in order to pick up additional yield. This was a drag on the overall
performance during the first part of the year as both of these sectors
underperformed Treasuries on a total return basis. However, performance during
the last quarter was helped as spread sectors of the market rebounded. Our
management style stresses the spread sectors of the market including corporate
bonds, government agencies and mortgage-backed securities. We attempt to
evaluate relative value opportunities within each sector and invest accordingly.
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).
We anticipate that the economy will slow later this year as weakness in the
global economies spreads to the U.S. and consumers slow their torrid spending
pace. We expect the Federal Reserve to remain on hold as long as inflation
indicators continue to be tame and interest rates should remain in a narrow
range around current levels. Based on our outlook for a slow, but growing,
economy we will seek to take advantage of value opportunities in the corporate
and mortgage sectors.
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
03/31/99 13,255 14,539 14,219
===== Limited-Term Bond Fund, Class B Shares (1) (2) -- $13,255
***** Salomon Brothers 1-5 Years Treasury/ Government Sponsored/ Corporate Index
(1) -- $14,539
- ----- Lipper Short-Intermediate Investment Grade Debt Fund Universe Average (1)
- -- $14,219
(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
3/31/99 1.65% 5.60%
5 Years Ended
3/31/99 5.07% N/A
6+ Years Ended
3/31/99*** 4.47% N/A
Life of Class Y ****N/A 5.29%
*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 6+ Years).
***9/21/92(the initial offering date) through 3/31/99
****12/29/95 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
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, 1999
- ----------------------------------------
DIVIDENDS PAID $0.44
=====
NET ASSET VALUE ON
3/31/99 $10.16
3/31/98 10.14
------
CHANGE PER SHARE $ 0.02
======
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 3-31-99 1.65% 4.65%
5-year period ended 3-31-99 5.07% 5.07%
Period from 9-21-92*
through 3-31-99 4.47% 4.47%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and reflects
payment of the applicable contingent deferred sales charge upon redemption at
the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1999, Limited-Term Bond Fund had net assets totaling $21,573,638
invested in a diversified portfolio of:
96.75% Bonds
3.25% Cash and Cash Equivalents
As a shareholder of Limited-Term Bond Fund, for every $100 you had invested on
March 31, 1999, your Fund owned:
$60.36 Corporate Bonds
34.88 U.S. Government Securities
3.25 Cash and Cash Equivalents
1.51 Municipal Bond
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Auto Repair, Services and Parking - 2.39%
Hertz Corporation (The),
7.375%, 6-15-2001 ..................... $ 500 $ 515,230
Chemicals and Allied Products - 2.37%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 500 510,430
Communication - 2.45%
GTE Corporation,
9.375%, 12-1-2000 ..................... 500 529,525
Depository Institutions - 6.43%
Aristar, Inc.,
5.85%, 1-27-2004 ...................... 500 494,400
SouthTrust Corporation,
9.95%, 6-1-99 ......................... 291 292,976
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 558 599,671
Total ................................. 1,387,047
Electric, Gas and Sanitary Services - 8.38%
NorAm Energy Corp.,
6.375%, 11-1-2003 ..................... 500 493,510
UtiliCorp United,
6.875%, 10-1-2004 ..................... 500 516,415
WMX Technologies, Inc.:
8.25%, 11-15-99 ....................... 580 589,970
7.0%, 5-15-2005 ....................... 200 207,782
Total ................................. 1,807,677
Electronic and Other Electric Equipment - 2.43%
Black & Decker Corp.,
7.5%, 4-1-2003 ........................ 500 523,320
Industrial Machinery and Equipment - 2.35%
Tenneco Inc.,
8.2%, 11-15-99 ........................ 500 507,890
Instruments and Related Products - 3.27%
Baxter International Inc.,
8.125%, 11-15-2001 .................... 350 368,130
Raytheon Company,
6.3%, 8-15-2000 ....................... 335 337,965
Total ................................. 706,095
Insurance Carriers - 2.34%
American General Finance Corporation,
6.2%, 3-15-2003 ....................... 500 505,010
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 10.79%
Associates Corporation of North America,
8.25%, 12-1-99 ........................ $ 500 $ 509,820
Avco Financial Services, Inc.,
7.375%, 8-15-2001 ..................... 500 517,665
Ford Motor Credit Company,
5.75%, 1-25-2001 ...................... 500 501,170
General Motors Acceptance Corporation,
7.0%, 9-15-2002 ....................... 500 517,485
Household Finance Corporation,
9.0%, 9-28-2001 ....................... 262 281,142
Total ................................. 2,327,282
Oil and Gas Extraction - 1.25%
USX Corporation,
9.8%, 7-1-2001 ........................ 250 268,855
Personal Services - 2.32%
Service Corporation International,
6.375%, 10-1-2000...................... 500 499,905
Petroleum and Coal Products - 2.13%
Chevron Corporation Profit Sharing/Savings
Plan Trust Fund,
8.11%, 12-1-2004 ...................... 430 458,835
Railroad Transportation - 2.91%
Union Pacific Corporation,
7.875%, 2-15-2002 ..................... 600 629,520
Security and Commodity Brokers - 2.37%
Salomon Inc.,
7.75%, 5-15-2000....................... 500 511,575
Textile Mill Products - 2.32%
Fruit of the Loom, Inc.,
7.875%, 10-15-99 ...................... 500 501,530
Transportation Equipment - 1.41%
AlliedSignal Inc.,
6.75%, 8-15-2000 ...................... 300 304,593
Wholesale Trade - Durable Goods - 2.45%
Westinghouse Electric Corporation,
8.875%, 6-1-2001 ...................... 500 528,405
TOTAL CORPORATE DEBT SECURITIES - 60.36% $13,022,724
(Cost: $12,869,182)
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
LIMITED-TERM BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BOND - 1.51%
Kansas
Kansas Development Finance Authority,
Health Facilities Revenue Bonds
(Stormont-Vail HealthCare, Inc.),
7.25%, 11-15-2002 ..................... $ 310 $ 325,888
(Cost: $310,000)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.4%, 2-15-2018 ....................... 109 109,332
6.05%, 9-15-2020 ...................... 537 537,533
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... 189 189,377
5.82%, 12-3-2003 ...................... 500 495,155
7.95%, 3-7-2005 ....................... 500 512,030
6.21%, 8-15-2005 ...................... 500 496,955
7.5%, 11-15-2006 ...................... 500 505,470
8.0%, 2-1-2008 ........................ 137 140,892
6.5%, 12-1-2010 ....................... 484 488,106
6.0%, 1-1-2011 ........................ 377 374,372
6.5%, 2-1-2011 ........................ 423 426,257
7.0%, 5-1-2011 ........................ 278 284,059
7.0%, 7-1-2011 ........................ 311 317,843
7.0%, 9-1-2012 ........................ 364 372,166
6.0%, 11-1-2013 ....................... 480 476,763
7.0%, 9-25-2020 ....................... 1 73
7.0%, 4-1-2026 ........................ 347 352,127
Government National Mortgage Association:
6.5%, 10-15-2008 ...................... 165 167,226
7.0%, 7-15-2010 ....................... 243 249,285
6.5%, 1-15-2014 ....................... 497 502,851
United States Treasury,
6.25%, 2-15-2007 ...................... 500 526,170
TOTAL UNITED STATES GOVERNMENT SECURITIES - 34.88% $ 7,524,042
(Cost: $7,508,866)
TOTAL SHORT-TERM SECURITIES - 1.54% $ 331,000
(Cost: $331,000)
TOTAL INVESTMENT SECURITIES - 98.29% $21,203,654
(Cost: $21,019,048)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.71% 369,984
NET ASSETS - 100.00% $21,573,638
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED HIGH INCOME FUND
MANAGER'S LETTER
MARCH 31, 1999
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the High Income Fund for the fiscal year
ended March 31, 1999. The following discussion, graphs and tables provide you
with information regarding the Fund's performance during that period.
During the first half of the fiscal year, the high yield market was strong and
there was a large supply of new issues. In August, the continuing crisis in
Asia and Russia's default on its debt obligations hit all U.S. markets,
including high yield. Spreads of yields for high yield bonds to U.S. Treasuries
widened significantly and the new issue market came to a virtual standstill as
the demand for new paper evaporated. By late October, the market started to
recover and new inflows of money led to a recovery in new issue activity. At
this point, however, only the very best quality companies could raise money.
Starting in January of 1999, there was a broadening of the new issue market and
spreads over higher rated issues narrowed somewhat. The market overall has
recovered approximately 50% of the loss suffered during August and September.
We raised cash during the year and sold the majority of the Fund's emerging
market paper due to unstable global markets. We maintained the relatively high
quality of the Fund's portfolio. We were more defensive going into the fiscal
year and it paid off. The management style during the year did not change, but
our strategy went from being very aggressive with the new issue calendar in
order to gain performance to being very cautious as the high yield market
deteriorated during the year.
The strategies and techniques we applied resulted in the performance of the Fund
for the fiscal year falling below the Salomon Brothers High Yield Composite
Index, but remaining fairly consistent with the Lipper High Current Yield Fund
Universe Average, as charted on the following page. The Salomon Brothers Index
reflects the performance of securities that generally represent the high-yield
bond market and the Lipper index reflects the universe of funds with similar
investment objectives. The Fund outperformed the indexes during the first nine
months of the fiscal year, but was negatively affected during the fourth quarter
by a couple of underperforming holdings.
The high yield market in general has underperformed the equity market since the
second quarter of the past fiscal year. Equities are significantly ahead of
where they were before the Asian crisis on the belief that the worst of the
financial crisis in the Asian and Latin American markets may be over. If the
crisis is over, as it appears, then one would expect the high yield market to
benefit across all sectors. To attempt to better position the Fund to benefit,
exposure to cyclicals and lower rated issues is increasing. This is being done
in small steps until a worldwide economic rebound becomes more certain.
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
03/31/98 11,177 10,929 10,835
03/31/99 10,986 11,115 10,660
+++++ High Income Fund, Class B Shares(1) -- $10,986
..... The Salomon Brothers High Yield Composite Index -- $11,115
- ----- The Lipper High Current Yield Fund Universe Average -- $10,660
(1) 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
3/31/99 -4.48% N/A%
1+ Years Ended
3/31/99*** 4.07% N/A
Aggregate Total
Return for
Life of Class Y ****N/A 2.45%
*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 2% (1+ Years).
`***7/31/97 (the initial offering date) through 3/31/99
****12/30/98 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/99.
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 as a primary objective
Fixed Income Securities. and capital growth as a
secondary objective.
Maximum 20% Common Stock
STRATEGY: Invests primarily in a diversified
portfolio of high-yield, high-risk,
fixed-income securities.
FOUNDED: 1997
SCHEDULED DIVIDEND FREQUENCY: MONTHLY
<PAGE>
PERFORMANCE SUMMARY -- Class B Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1999
- ----------------------------------------
DIVIDENDS PAID $ 0.63
======
CAPITAL GAINS DISTRIBUTION $0.03
=====
NET ASSET VALUE ON
3/31/99 $9.94 adjusted to: $ 9.97(A)
3/31/98 10.79
------
CHANGE PER SHARE $(0.82)
======
(A)This number includes the capital gains distribution of $0.03 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 -4.48% -1.72%
Period from 7-31-97*
through 3-31-99 4.07% 5.81%
*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, 1999, High Income Fund had net assets totaling $25,432,863 invested
in a diversified portfolio of:
85.77% Corporate Debt Securities
6.67% Common Stocks and Warrants
6.57% Cash and Cash Equivalents
0.99% Other Government Security
As a shareholder of High Income Fund, for every $100 you had invested on March
31, 1999, your Fund owned:
$34.21 Transportation, Communication, Electric
and Sanitary Services Bonds
29.57 Manufacturing Bonds
14.01 Services Bonds
6.98 Wholesale and Retail Trade Bonds
6.67 Common Stocks and Warrants
6.57 Cash and Cash Equivalents
0.99 Other Government Security
0.60 Agriculture, Forestry and Fisheries Bonds
0.40 Finance, Insurance and Real Estate Bonds
Not all holdings will be represented in the portfolio at all times.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Shares Value
COMMON STOCKS AND WARRANTS
Communication - 0.98%
Allegiance Telecom, Inc., Warrants (C)* 250 $ 10,500
OnePoint Communications Corp., Warrants (C)* 100 100
Sprint Corporation - PCS Group* ........ 5,000 221,562
VersaTel Telecom International N.V.,
Warrants (C)* ......................... 250 17,500
Total ................................. 249,662
Food and Kindred Products - 1.44%
Keebler Foods Company* ................. 10,000 365,000
General Merchandise Stores - 1.16%
Fred Meyer, Inc.* ...................... 5,000 294,375
Instruments and Related Products - 1.48%
Maxxim Medical, Inc.* .................. 20,000 377,500
Paper and Allied Products - 0.00%
SF Holdings Group, Inc., Class C (C)* .. 500 1,000
Radio and Television Broadcasting - 1.06%
Infinity Broadcasting Corporation,
Class A* .............................. 10,500 270,375
Wholesale Trade - Nondurable Goods - 0.55%
U.S. Foodservice* ...................... 3,000 139,500
TOTAL COMMON STOCKS AND WARRANTS - 6.67% $ 1,697,412
(Cost: $1,497,077)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Agricultural Production - Crops - 0.60%
Frank's Nursery & Crafts, Inc.,
10.25%, 3-1-2008 .................... $100 99,250
Hines Horticulture, Inc.,
11.75%, 10-15-2005 .................. 49 53,287
Total ............................... 152,537
Amusement and Recreation Services - 4.09%
Hollywood Park, Inc.,
9.25%, 2-15-2007 (C) ................ 250 256,875
Mohegan Tribal Gaming Authority,
8.75%, 1-1-2009 (C) ................. 250 260,937
Premier Parks Inc.,
0.0%, 4-1-2008 (D) .................. 750 521,250
Total ............................... 1,039,062
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Auto Repair, Services and Parking - 0.92%
Safelite Glass Corp.,
9.875%, 12-15-2006 .................. $250 $ 233,438
Building Materials and Garden Supplies - 1.87%
Henry Company,
10.0%, 4-15-2008 .................... 250 252,187
ISG Resources, Inc.,
10.0%, 4-15-2008 .................... 220 223,300
Total ............................... 475,487
Business Services - 1.53%
Lamar Advertising Company:
9.625%, 12-1-2006 ................... 25 27,000
8.625%, 9-15-2007 ................... 250 263,125
Rental Service Corporation,
9.0%, 5-15-2008 ..................... 100 100,000
Total ............................... 390,125
Cable and Other Pay Television Services - 3.96%
Bresnan Communications Group LLC and
Bresnan Capital Corporation:
0.0%, 2-1-2009 (C)(D) ............... 100 68,000
8.0%, 2-1-2009 (C) .................. 100 101,000
Charter Communications Holdings, LLC
and Charter Communications Holdings
Capital Corporation:
8.625%, 4-1-2009 (C) ................ 500 514,375
0.0%, 4-1-2011 (C)(D) ............... 500 323,125
Total ............................... 1,006,500
Chemicals and Allied Products - 3.02%
Aqua-Chem, Inc.,
11.25%, 7-1-2008 .................... 250 220,000
Spinnaker Industries, Inc.,
10.75%, 10-15-2006 .................. 50 35,000
United Industries Corporation,
9.875%, 4-1-2009 (C) ................ 500 513,750
Total ............................... 768,750
Communication - 24.62%
Allegiance Telecom, Inc.,
0.0%, 2-15-2008 (D) ................. 250 155,625
Concentric Network Corporation,
12.75%, 12-15-2007 .................. 250 285,625
Hyperion Telecommunications, Inc.:
0.0%, 4-15-2003 (D) ................. 250 206,250
12.0%, 11-1-2007 (C) ................ 250 261,250
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication (Continued)
ICG Services, Inc.,
0.0%, 5-1-2008 (D) .................. $100 $ 59,750
ITC /\ DeltaCom, Inc.:
11.0%, 6-1-2007 ..................... 250 275,313
8.875%, 3-1-2008 .................... 100 100,500
IXC Communications, Inc.,
9.0%, 4-15-2008 ..................... 250 260,000
Intermedia Communications Inc.,
8.5%, 1-15-2008 ..................... 250 248,750
Iridium LLC and Iridium Capital
Corporation:
10.875%, 7-15-2005 .................. 100 38,000
11.25%, 7-15-2005 ................... 100 38,000
13.0%, 7-15-2005 .................... 100 42,000
Level 3 Communications, Inc.:
9.125%, 5-1-2008 .................... 250 250,625
0.0%, 12-1-2008 (C)(D) .............. 500 313,125
MetroNet Communications Corp.,
0.0%, 6-15-2008 (D) ................. 500 386,250
Microcell Telecommunications Inc.,
0.0%, 6-1-2006 (D) .................. 100 81,500
Nextel Communications, Inc.:
9.75%, 8-15-2004 .................... 500 517,500
0.0%, 2-15-2008 (D) ................. 100 70,000
Nextel Partners, Inc.,
0.0%, 2-1-2009 (C)(D) ............... 500 290,000
NEXTLINK Communications, Inc.,
9.625%, 10-1-2007 ................... 100 101,500
OnePoint Communications Corp.,
14.5%, 6-1-2008 (C) ................. 100 52,500
Qwest Communications International Inc.,
0.0%, 10-15-2007 (D) ................ 250 198,125
RSL Communications, Ltd.,
10.5%, 11-15-2008 ................... 500 527,500
Sprint Spectrum L.P.,
0.0%, 8-15-2006 (D) ................. 600 547,896
Time Warner Telecom LLC and Time
Warner Telecom Inc.,
9.75%, 7-15-2008 .................... 250 267,500
VersaTel Telecom International N.V.,
13.25%, 5-15-2008 ................... 250 260,625
Viatel, Inc.,
11.5%, 3-15-2009 (C) ................ 250 260,000
WinStar Communications, Inc.,
10.0%, 3-15-2008 .................... 250 167,500
Total ............................... 6,263,209
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Eating and Drinking Places - 3.32%
Domino's Pizza, Inc.,
10.375%, 1-15-2009 (C) .............. $100 $ 103,000
Foodmaker, Inc.,
8.375%, 4-15-2008 ................... 500 498,750
NE Restaurant Company, Inc.,
10.75%, 7-15-2008 ................... 250 241,875
Total ............................... 843,625
Electric, Gas and Sanitary Services - 0.96%
Allied Waste North America, Inc.,
7.875%, 1-1-2009 .................... 250 245,000
Electronic and Other Electric Equipment - 3.67%
Communications Instruments, Inc.,
10.0%, 9-15-2004 .................... 50 48,313
EchoStar DBS Corporation,
9.375%, 2-1-2009 (C) ................ 500 517,500
Elgar Holdings, Inc.,
9.875%, 2-1-2008 .................... 250 195,000
WESCO International, Inc.,
0.0%, 6-1-2008 (D) .................. 250 173,125
Total ............................... 933,938
Fabricated Metal Products - 2.01%
AXIA Incorporated,
10.75%, 7-15-2008 ................... 250 249,687
Neenah Corporation,
11.125%, 5-1-2007 ................... 250 262,500
Total ............................... 512,187
Food and Kindred Products - 0.21%
Southern Foods Group, L.P.
and SFG Capital Corporation,
9.875%, 9-1-2007 .................... 50 52,563
Hotels and Other Lodging Places - 3.86%
Coast Hotels and Casinos, Inc.,
9.5%, 4-1-2009 (C) .................. 100 101,250
MGM Grand, Inc.,
6.875%, 2-6-2008 .................... 500 469,520
Station Casinos, Inc.,
8.875%, 12-1-2008 (C) ............... 400 410,000
Total ............................... 980,770
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Industrial Machinery and Equipment - 3.42%
National Equipment Services, Inc.,
10.0%, 11-30-2004 ................... $500 $ 505,750
Tokheim Corporation,
11.375%, 8-1-2008 (C) ............... 250 265,625
Walbro Corporation,
9.875%, 7-15-2005 ................... 100 98,375
Total ............................... 869,750
Instruments and Related Products - 1.45%
Cole National Group, Inc.,
9.875%, 12-31-2006 .................. 125 128,906
Universal Hospital Services, Inc.,
10.25%, 3-1-2008 .................... 260 240,500
Total ............................... 369,406
Miscellaneous Manufacturing Industries - 1.11%
AAi.Fostergrant, Inc.,
10.75%, 7-15-2006 ................... 250 197,500
Amscan Holdings, Inc.,
9.875%, 12-15-2007 .................. 100 86,000
Total ............................... 283,500
Miscellaneous Retail - 1.79%
MTS INCORPORATED,
9.375%, 5-1-2005 .................... 250 241,250
Michaels Stores, Inc.,
10.875%, 6-15-2006 .................. 200 214,500
Total ............................... 455,750
Motion Pictures - 2.64%
Hollywood Theaters, Inc.,
10.625%, 8-1-2007 ................... 250 161,250
Regal Cinemas, Inc.,
9.5%, 6-1-2008 ...................... 500 510,625
Total ............................... 671,875
Paper and Allied Products - 2.23%
Buckeye Technologies Inc.,
8.0%, 10-15-2010 .................... 250 251,250
Republic Group Incorporated,
9.5%, 7-15-2008 ..................... 250 253,438
SF Holdings Group, Inc.,
0.0%, 3-15-2008 (D) ................. 250 61,875
Total ............................... 566,563
Petroleum and Coal Products - 1.57%
Building Materials Corporation of America,
8.0%, 12-1-2008 (C) ................. 400 399,000
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Primary Metal Industries - 1.37%
California Steel Industries, Inc.,
8.5%, 4-1-2009 (C) .................. $100 $ 101,500
Wheeling-Pittsburgh Corporation,
9.25%, 11-15-2007 ................... 250 246,250
Total ............................... 347,750
Printing and Publishing - 5.39%
Big Flower Press Holdings, Inc.,
8.625%, 12-1-2008 (C) ............... 500 505,000
Perry-Judd's Incorporated,
10.625%, 12-15-2007 ................. 250 256,250
TransWestern Publishing Company LLC,
9.625%, 11-15-2007 .................. 100 105,000
World Color Press, Inc.,
8.375%, 11-15-2008 (C) .............. 500 503,750
Total ............................... 1,370,000
Radio and Television Broadcasting - 2.47%
ACME Television, LLC,
0.0%, 9-30-2004 (D) ................. 100 85,250
Chancellor Media Corporation of
Los Angeles,
8.0%, 11-1-2008 (C) ................. 250 260,312
LIN Holdings Corp.,
0.0%, 3-1-2008 (D) .................. 250 176,250
Salem Communications Corporation,
9.5%, 10-1-2007 ..................... 75 79,500
Sinclair Broadcast Group, Inc.,
10.0%, 9-30-2005 .................... 25 26,500
Total ............................... 627,812
Real Estate - 0.40%
Delco Remy International, Inc.,
8.625%, 12-15-2007 .................. 100 102,000
Rubber and Miscellaneous Plastics Products - 2.96%
Heafner (J.H.) Company, Inc. (The):
10.0%, 5-15-2008 .................... 100 102,375
10.0%, 5-15-2008 (C) ................ 400 409,500
Home Products International, Inc.,
9.625%, 5-15-2008 ................... 250 241,250
Total ............................... 753,125
Social Services - 0.97%
La Petite Academy, Inc. and LPA Holding Corp.,
10.0%, 5-15-2008 .................... 250 246,250
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
HIGH INCOME FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textile Mill Products - 0.77%
Galey & Lord, Inc.,
9.125%, 3-1-2008 .................... $250 $ 195,000
Transportation by Air - 1.99%
Atlas Air, Inc.,
9.375%, 11-15-2006 (C) .............. 500 505,625
Transportation Equipment - 0.39%
Federal-Mogul Corporation,
7.875%, 7-1-2010 .................... 100 99,886
Trucking and Warehousing - 0.21%
Pierce Leahy Corp.,
9.125%, 7-15-2007 ................... 50 52,500
TOTAL CORPORATE DEBT SECURITIES - 85.77% $21,812,983
(Cost: $22,032,283)
OTHER GOVERNMENT SECURITY - 0.99%
Mexico
United Mexican States,
9.75%, 4-6-2005 ..................... 250 $ 250,938
(Cost: $249,910)
TOTAL SHORT-TERM SECURITIES - 4.85% $ 1,234,000
(Cost: $1,234,000)
TOTAL INVESTMENT SECURITIES - 98.28% $24,995,333
(Cost: $25,013,270)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.72% 437,530
NET ASSETS - 100.00% $25,432,863
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED MUNICIPAL BOND FUND
MANAGER'S LETTER
MARCH 31, 1999
- ---------------------------------------------------------------------------
Dear Shareholder:
This report relates to the operation of the Municipal Bond Fund for the fiscal
year ended March 31, 1999. The following discussion, graphs and tables provide
you with information regarding the Fund's performance during that period.
Interest rates declined overall for the fiscal year, as the Federal Reserve
lowered short-term interest rates three times last fall. The Fed action was
triggered by market conditions mainly outside the U.S. Russia defaulted on its
debt and Latin America experienced devaluations and severe recessions. However,
the near default of a very large U.S. hedge fund also influenced the Fed's
actions. Governments throughout the world followed the Fed's lead by easing
rates and adding liquidity, which brought interest rates down in most developed
countries and moved stock and bond prices up.
This is a long-term investment grade fund. We have continued to seek out
higher-yielding issues among long-term investment grade municipal bonds. The
Fund is kept fully invested at most times, depending on bond availability and
market conditions. When sales are made, it is usually out of the lower-yielding
issues in the Fund's portfolio into higher-yielding bonds.
The strategies and techniques we applied resulted in the Fund's performance for
the fiscal year falling below that of the Lehman Brothers Municipal Debt Index
index (reflecting the performance of securities that generally represent the
municipal bond market) and remaining consistent with that of the Lipper General
Municipal Bond Fund Universe Average (reflecting the universe of funds with
similar investment objectives). Both indexes are charted on the following page.
Since the Federal Reserve lowered short-term rates and added liquidity last
fall, the economy has accelerated rapidly. Expectations are for our economy to
slow materially now that the first quarter boost from tax refunds and bonus
payments has passed. Also, world growth is not expected to accelerate soon.
Inflation has remained low and does not appear to present a threat to bond
prices now. Financial strains are still the dominant theme, but if a
synchronized world recovery develops next year we could become more cautious and
shorten bond maturities.
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 14,846 14,181
03/31/99 15,065 15,767 14,874
===== Municipal Bond Fund, Class B Shares (1) (2)-- $15,065
+++++ Lehman Brothers Municipal Debt Index (1) -- $15,767
- ----- Lipper General Municipal Debt Fund Universe Average (1) -- $14,874
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** Class Y
-----------------------------
Year Ended
3/31/99 1.70% N/A
5 Years Ended
3/31/99 6.92% N/A
6+ Years Ended
3/31/99*** 6.54% N/A
Aggregate Total
Return for
Life of Class Y N/A 0.80%****
*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 6+ Years).
***9/21/92 (the initial offering date) through 3/31/99
****12/30/98 (the date on which Fund Class Y shares were first acquired and
continuously held by shareholders) through 3/31/99.
<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 primarily 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, 1999
- -------------------------------------------
DIVIDENDS PAID $0.42
=====
CAPITAL GAINS DISTRIBUTION $0.31
=====
NET ASSET VALUE ON
3/31/99 $11.24 adjusted to: $11.55 (A)
3/31/98 11.45
------
CHANGE PER SHARE $0.10
======
(A)This number includes the capital gains distribution of $0.31 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 1.70% 4.64%
5-year period ended 3-31-99 6.92% 6.92%
Period from 9-21-92*
through 3-31-99 6.54% 6.54%
*Initial public offering of the Fund.
**"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted represents past performance and
reflects payment of the applicable contingent deferred sales charge upon
redemption at the end of each period.
***"CDSC" refers to the contingent deferred sales charge described in the
Prospectus. Performance data quoted in this column represents past
performance without reflecting deduction of the applicable contingent
deferred sales charge upon redemption at the end of each period.
Investment return and principal value will fluctuate and an investor's
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1999, Municipal Bond Fund had net assets totaling $42,908,191
invested in a diversified portfolio.
As a shareholder of Municipal Bond Fund, for every $100 you had invested on
March 31, 1999, your Fund owned:
$17.66 Hospital Revenue Bonds
16.44 Industrial Revenue Bonds
13.72 Lifecare/Nursing Centers Revenue Bonds
11.73 Other Municipal Bonds
9.24 Housing Revenue Bonds
4.68 Student Loan Bonds
4.25 Leasing/Certificates of Participation Bonds
4.04 Transportation Revenue Bonds
3.84 Education Revenue Bonds
3.55 Public Power Revenue Bonds
3.53 Cash and Cash Equivalents
3.03 Special Tax Bonds
2.37 Resource Recovery Revenue Bonds
1.92 Electric Utility Revenue Bonds
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS
ALASKA - 2.43%
City of Valdez, Alaska, Marine
Terminal Revenue Refunding Bonds
(BP Pipelines (Alaska) Inc. Project),
Series 1993A,
5.85%, 8-1-2025 ....................... $1,000 $ 1,041,250
ARIZONA - 0.66%
City of Bullhead City, Arizona, Bullhead
Parkway Improvement District,
Improvement Bonds,
6.1%, 1-1-2013 ........................ 270 285,187
ARKANSAS - 1.00%
Baxter County, Arkansas, Industrial Development
Revenue Refunding Bonds (Aeroquip Corporation
Project), Series 1993,
5.8%, 10-1-2013 ....................... 400 429,500
CALIFORNIA - 4.04%
Foothill/Eastern Transportation Corridor
Agency, Toll Road Revenue Bonds, Series
1995A,
0.0%, 1-1-2013 (D) .................... 2,000 1,732,500
COLORADO - 4.73%
Colorado Health Facilities Authority, Hospital
Revenue Bonds (Steamboat Springs Health Care
Association Project), Series 1997,
5.75%, 9-15-2022 ...................... 1,000 1,016,250
Boulder County, Colorado, Hospital Development
Revenue Bonds (Longmont United Hospital
Project), Series 1997,
5.6%, 12-1-2027 ....................... 1,000 1,012,500
Total ................................. 2,028,750
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
DISTRICT OF COLUMBIA - 1.24%
District of Columbia, Redevelopment Land
Agency (Washington, D.C.), Sports Arena
Special Tax Revenue Bonds (Series 1996),
5.625%, 11-1-2010 ..................... $ 515 $ 533,025
FLORIDA - 4.37%
Escambia County, Florida, Pollution Control Revenue
Bonds (Champion International Corporation Project),
Series 1994,
6.9%, 8-1-2022 ........................ 1,000 1,095,000
Housing Finance Authority of Palm Beach
County, Florida, Multifamily Housing
Revenue Bonds (Windsor Park Apartments
Project), Series 1998A,
5.9%, 6-1-2038 ........................ 750 780,938
Total ................................. 1,875,938
INDIANA - 0.95%
East Chicago Elementary School Building
Corporation (Lake County, Indiana),
First Mortgage Bonds, Series 1993A,
5.5%, 1-15-2016 ....................... 400 409,500
IOWA - 0.82%
Scott County, Iowa, Refunding Certificates
of Participation (County Golf Course
Project, Series 1993),
6.2%, 5-1-2013 ........................ 340 354,025
KANSAS - 1.72%
The Parks and Recreation Foundation of Johnson
County (Johnson County, Kansas), Lease
Revenue Bonds, Series 1998,
5.25%, 9-1-2018 ....................... 750 736,875
MARYLAND - 2.79%
Montgomery County Revenue Authority
(Maryland), Golf Course System Revenue
Bonds, Series 1996A,
6.125%, 10-1-2022 ..................... 650 687,375
Maryland Health and Higher Educational
Facilities Authority, Project and
Refunding Revenue Bonds, Doctors Community
Hospital Issue, Series 1993,
5.75%, 7-1-2013 ....................... 500 508,750
Total ................................. 1,196,125
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
MASSACHUSETTS - 5.26%
Massachusetts Health and Educational Facilities
Authority, Revenue Bonds, Caritas Christi
Obligated Group Issue, Series A,
5.625%, 7-1-2020 ...................... $1,250 $ 1,242,187
Massachusetts Industrial Finance Agency,
Resource Recovery Revenue Refunding Bonds
(Ogden Haverhill Project), Series 1998A,
5.5%, 12-1-2013 ....................... 1,000 1,015,000
Total ................................. 2,257,187
MICHIGAN - 4.53%
Michigan Strategic Fund, Limited Obligation
Revenue Bonds (Porter Hills Presbyterian
Village, Inc. Project), Series 1998,
5.375%, 7-1-2028 ...................... 1,000 995,000
City of Flint Hospital Building Authority,
Revenue Rental Bonds, Series 1998B (Hurley
Medical Center),
5.375%, 7-1-2018 ...................... 1,000 950,000
Total ................................. 1,945,000
MISSOURI - 7.09%
The Industrial Development Authority of the
County of Taney, Missouri, Hospital Revenue
Bonds (The Skaggs Community Hospital
Association), Series 1998,
5.3%, 5-15-2018 ....................... 1,860 1,839,075
Health and Educational Facilities Authority
of the State of Missouri, Educational Facilities
Revenue Bonds (Southwest Baptist University
Project), Series 1998,
5.375%, 10-1-2023 ..................... 700 707,000
City of Fenton, Missouri, Public Facilities
Authority, Leasehold Revenue Bonds,
Series 1997 (City of Fenton, Missouri, Lessee),
5.25%, 1-1-2018 ....................... 500 495,625
Total ................................. 3,041,700
MONTANA - 4.68%
Montana Higher Education Student Assistance
Corporation, Student Loan Revenue Bonds,
Subordinate Series 1998-B,
5.5%, 12-1-2031 ....................... 2,000 2,007,500
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
NEBRASKA - 3.59%
Hospital Revenue and Refunding Bonds (Faith
Regional Health Services Project), Series
1998, Issued by Hospital Authority No. 1
of Madison County, Nebraska,
5.35%, 7-1-2018 ....................... $1,000 $ 1,008,750
Nebraska Higher Education Loan Program, Inc.,
Senior Subordinate Bonds, 1993-2
Series A-5A,
6.2%, 6-1-2013 ........................ 500 531,875
Total ................................. 1,540,625
NEVADA - 5.95%
Clark County, Nevada, Industrial Development
Refunding Revenue Bonds (Nevada Power
Company Project), Series 1995B,
5.9%, 10-1-2030 ....................... 1,500 1,524,375
West Wendover Recreation District, Elko
County, Nevada, General Obligation
(Limited Tax), Recreational Facilities
and Refunding Bonds, Series 1996,
6.25%, 12-1-2021 ...................... 950 1,029,563
Total ................................. 2,553,938
NEW JERSEY - 3.78%
New Jersey Economic Development Authority,
Economic Development Refunding Bonds (Preston
Trucking Company, Inc. - 1996 Project),
6.5%, 9-1-2014 ........................ 1,500 1,621,875
NEW MEXICO - 5.24%
City of Albuquerque, New Mexico, Gross
Receipts/Lodgers' Tax Refunding and
Improvement Revenue Bonds, Series 1991B:
0.0%, 7-1-2013 ........................ 1,850 945,812
0.0%, 7-1-2013 ........................ 2,650 1,301,813
Total ................................. 2,247,625
OHIO - 2.07%
City of Moraine, Ohio, Solid Waste
Disposal Revenue Bonds (General Motors
Corporation Project), Series 1994,
6.75%, 7-1-2014 ....................... 750 886,875
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
OKLAHOMA - 4.41%
Oklahoma Housing Finance Agency, Single
Family Mortgage Revenue Bonds
(Homeownership Loan Program),
1996 Series A,
7.05%, 9-1-2026 ....................... $1,000 $ 1,108,750
Tulsa Public Facilities Authority (Oklahoma):
Recreational Facilities Revenue Bonds,
Series 1985,
6.2%, 11-1-2012 ....................... 500 544,375
Assembly Center Lease Payment Revenue
Bonds, Refunding Series 1985,
6.6%, 7-1-2014 ........................ 200 239,000
Total ................................. 1,892,125
PENNSYLVANIA - 4.26%
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 1,826,562
TENNESSEE - 7.23%
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 ........................ 1,990 2,054,675
Tennessee Housing Development Agency,
Homeownership Program Bonds, Issue T,
7.375%, 7-1-2023 ...................... 1,000 1,046,250
Total ................................. 3,100,925
TEXAS - 4.31%
Texas Department of Housing and Community
Affairs, Single Family Mortgage Revenue
Bonds, Series D (AMT) TEAMS Structure,
5.7%, 9-1-2029 ........................ 1,000 1,028,750
Sabine River Authority of Texas,
Collateralized Pollution Control
Revenue Refunding Bonds (Texas
Utilities Electric Company Project),
Series 1993B,
5.85%, 5-1-2022 ....................... 800 822,000
Total ................................. 1,850,750
See Notes to Schedules of Investments on page 71.
<PAGE>
THE INVESTMENTS OF
MUNICIPAL BOND FUND
MARCH 31, 1999
Principal
Amount in
Thousands Value
MUNICIPAL BONDS (Continued)
UTAH - 4.61%
Tooele County, Utah, Hazardous Waste Treatment
Revenue Bonds (Union Pacific Corporation/
USPCI, Inc. Project), Series A,
5.7%, 11-1-2026 ....................... $2,000 $ 1,977,500
VIRGIN ISLANDS - 2.35%
Virgin Islands Public Finance Authority
Revenue and Refunding Bonds (Virgin
Islands Matching Fund Loan Notes),
Series 1998 A (Senior Lien/Refunding),
5.5%, 10-1-2018 ....................... 1,000 1,008,750
WASHINGTON - 2.36%
Housing Authority of the City of Seattle,
Low-Income Housing Assistance Revenue Bonds,
1995 (GNMA Collateralized Mortgage Loan -
Kin On Project),
7.4%, 11-20-2036 ...................... 875 1,012,813
TOTAL MUNICIPAL BONDS - 96.47% $41,394,425
(Cost: $39,372,700)
TOTAL SHORT-TERM SECURITIES - 2.42% $ 1,038,000
(Cost: $1,038,000)
TOTAL INVESTMENT SECURITIES - 98.89% $42,432,425
(Cost: $40,410,700)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.11% 475,766
NET ASSETS - 100.00% $42,908,191
See Notes to Schedules of Investments on page 71.
<PAGE>
WADDELL & REED FUNDS, INC.
MARCH 31, 1999
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) See Note 8 to financial statements.
(C) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At March 31, 1999, the value of these
securities amounted to $7,326,099 in High Income Fund, or 28.81% of net
assets and $4,862,835 in International Growth Fund, or 4.84% of net assets.
(D) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 4 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1999
(In Thousands Except for Per Share and Share Amounts)
Total Science and
Return Growth Technology
Fund Fund Fund
Assets ----------- ----------- -----------
Investment securities--at
value (Notes 1 and 4).. $508,061 $431,038 $43,543
Cash ................... --- --- 2
Receivables:
Fund shares sold ...... 2,609 1,912 956
Investment securities sold --- 2,988 ---
Dividends and interest. 986 117 14
Prepaid insurance premium 1 1 ---
-------- -------- -------
Total assets ........ 511,657 436,056 44,515
Liabilities -------- -------- -------
Payable to Fund shareholders 1,822 1,346 65
Payable for investment
securities purchased .. --- 1,930 ---
Accrued service fee -
Class B (Note 3)....... 106 87 9
Accrued transfer agency and
dividend disbursing (Note 3) 102 97 12
Accrued distribution
fee - Class B (Note 3). 10 8 1
Dividends payable ...... --- --- ---
Accrued accounting
services fee (Note 3).. 5 5 2
Accrued management fee (Note 3) 10 10 1
Other .................. 11 19 1
-------- -------- -------
Total liabilities ... 2,066 3,502 91
-------- -------- -------
Total net assets ... $509,591 $432,554 $44,424
Net Assets ======== ======== =======
$0.01 par value capital stock
Capital stock ......... $ 442 $ 293 $ 25
Additional paid-in capital 347,677 285,263 32,433
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income ... 1,039 --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 8,962 29,668 (74)
Net unrealized appreciation
(depreciation) of
investments ......... 151,471 117,330 12,040
-------- -------- -------
Net assets applicable to
outstanding units
of capital ......... $509,591 $432,554 $44,424
======== ======== =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $11.52 $14.74 $17.45
Class Y Shares ......... $11.78 $15.21 $17.65
Capital shares outstanding:
Class B Shares ......... 44,109,295 28,804,995 2,543,511
Class Y Shares ......... 117,265 522,230 2,993
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, 1999
(In Thousands Except for Per Share and Share Amounts)
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Assets ------------ ----------- ----------
Investment securities--at
value (Notes 1 and 4).. $100,985 $30,480 $21,204
Cash ................... 2 2 2
Receivables:
Fund shares sold ...... 436 195 69
Investment securities sold 114 --- ---
Dividends and interest. 176 187 349
Prepaid insurance premium --- --- ---
-------- ------- -------
Total assets ........ 101,713 30,864 21,624
Liabilities -------- ------- -------
Payable to Fund shareholders 402 61 27
Payable for investment
securities purchased .. 833 --- ---
Accrued service fee -
Class B (Note 3)....... 21 6 5
Accrued transfer agency and
dividend disbursing (Note 3) 35 10 7
Accrued distribution
fee - Class B (Note 3). 2 1 ---
Dividends payable ...... --- --- 8
Accrued accounting
services fee (Note 3).. 3 2 1
Accrued management fee (Note 3) 2 1 --
Other .................. 22 3 2
-------- ------- -------
Total liabilities ... 1,320 84 50
-------- ------- -------
Total net assets ... $100,393 30,780 21,574
Net Assets ======== ======= =======
$0.01 par value capital stock
Capital stock ......... $ 64 $ 27 $ 21
Additional paid-in capital 73,783 29,511 21,521
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income (loss) --- 7 ---
Accumulated undistributed
net realized gain (loss)
on investments ...... 5,203 (479) (153)
Net unrealized appreciation
(depreciation) of
investments ......... 21,343 1,714 185
-------- ------- -------
Net assets applicable to
outstanding units
of capital ......... $100,393 $30,780 $21,574
======== ======= =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $15.58 $11.20 $10.16
Class Y Shares ......... $16.08 $11.21 $10.16
Capital shares outstanding:
Class B Shares ......... 6,403,190 2,721,011 2,097,951
Class Y Shares ......... 39,139 27,423 25,887
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, 1999
(In Thousands Except for Per Share and Share Amounts)
High Municipal
Income Bond
Fund Fund
Assets --------- ------------
Investment securities--at
value (Notes 1 and 4).. $24,995 $42,432
Cash ................... 15 1
Receivables:
Fund shares sold ...... 165 339
Investment securities sold 458 ---
Dividends and interest. 453 612
Prepaid insurance premium --- ---
------- -------
Total assets ........ 26,086 43,384
Liabilities ------- -------
Payable to Fund shareholders 26 439
Payable for investment
securities purchased .. 600 ---
Liabilities for securities
on loan ............... --- ---
Accrued service fee -
Class B (Note 3)....... 5 9
Accrued transfer agency and
dividend disbursing (Note 3) 7 9
Accrued distribution
fee - Class B (Note 3). 1 1
Dividends payable ...... 12 14
Accrued accounting
services fee (Note 3).. 1 2
Accrued management fee (Note 3) --- 1
Other .................. 1 1
------- -------
Total liabilities ... 653 476
------- -------
Total net assets ... $25,433 $42,908
Net Assets ======= =======
$0.01 par value capital stock
Capital stock ......... $ 26 $ 38
Additional paid-in capital 26,186 40,917
Accumulated undistributed income (loss):
Accumulated undistributed net
investment income (loss) --- ---
Accumulated undistributed
net realized gain (loss)
on investments ...... (761) (69)
Net unrealized appreciation
(depreciation) of
investments ......... (18) 2,022
------- -------
Net assets applicable to
outstanding units
of capital ......... $25,433 $42,908
======= =======
Net asset value, redemption and
offering price per share:
Class B Shares ......... $9.94 $11.24
Class Y Shares ......... $9.94 $11.24
Capital shares outstanding:
Class B Shares ......... 2,557,210 3,816,221
Class Y Shares ......... 640 179
Capital shares authorized 500,000,000 500,000,000
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 6,802 $ 3,887 $ 234
Dividends ............. 3,874 334 7
------- ------- -------
Total income ........ 10,676 4,221 241
------- ------- -------
Expenses (Notes 2 and 3):
Distribution fee - Class B 3,580 2,628 139
Investment management fee 3,391 2,846 130
Service fee - Class B.. 1,202 886 47
Transfer agency and dividend
disbursing - Class B 791 764 90
Registration fees ..... 64 55 29
Accounting services fee 60 54 10
Custodian fees ........ 32 19 5
Audit fees ............ 16 14 6
Legal fees ............ 7 5 ---
Amortization of prepaid
registration fees ... --- --- 10
Shareholder servicing fee -
Class Y ............. 2 2 ---
Distribution fee - Class Y 3 4 ---
Other ................. 93 85 9
------- ------- -------
Total expenses ...... 9,241 7,362 475
------- ------- -------
Net investment income (loss) 1,435 (3,141) (234)
------- ------- -------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 58,725 68,630 148
Realized net loss from foreign
currency transactions . --- --- ---
Realized net gain on forward
currency contracts .... --- --- ---
------- ------- -------
Realized net gain (loss)
on investments ...... 58,725 68,630 148
------- ------- -------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (24,832) 7,999 10,801
Unrealized depreciation from
translation of assets and
liabilities in foreign currencies --- --- ---
------- ------- ------
Unrealized appreciation
(depreciation) ...... (24,832) 7,999 10,801
------- ------- -------
Net gain (loss) on investments 33,893 76,629 10,949
------- ------- -------
Net increase (decrease) in net
assets resulting from
operations ....... $35,328 $73,488 $10,715
======= ======= =======
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
Investment Income (Loss) ------------ ----------- -----------
Income (Note 1B):
Interest and amortization $ 267 $824 $1,241
Dividends ............. 1,365 98 ---
------- ---- ------
Total income ........ 1,632 922 1,241
------- ---- ------
Expenses (Notes 2 and 3):
Distribution fee - Class B 670 185 143
Investment management fee 726 201 108
Service fee - Class B.. 225 61 48
Transfer agency and dividend
disbursing - Class B 260 65 52
Registration fees ..... 32 24 23
Accounting services fee 30 15 10
Custodian fees ........ 121 7 3
Audit fees ............ 15 11 11
Legal fees ............ 1 --- ---
Amortization of prepaid
registration fees ... --- --- ---
Shareholder servicing fee -
Class Y ............. 1 --- ---
Distribution fee - Class Y 1 1 1
Other ................. 24 5 6
------- ---- ------
Total expenses ...... 2,106 575 405
------- ---- ------
Net investment income (loss) (474) 347 836
------- ---- ------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... 10,149 (425) 2
Realized net loss from foreign
currency transactions . (105) --- ---
Realized net gain on forward
currency contracts .... 303 --- ---
------- ---- ------
Realized net gain (loss)
on investments ...... 10,347 (425) 2
------- ---- ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (374) 555 2
Unrealized depreciation from
translation of assets and
liabilities in foreign currencies (7) --- ---
------- ---- ------
Unrealized appreciation
(depreciation) ...... (381) 555 2
------- ---- ------
Net gain (loss) on investments 9,966 130 4
------- ---- ------
Net increase (decrease) in net
assets resulting from
operations ....... $ 9,492 $477 $ 840
======= ==== ======
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands) High Municipal
Income Bond
Fund Fund
Investment Income (Loss) ------------ -----------
Income (Note 1B):
Interest and amortization $1,604 $2,253
Dividends ............. --- ---
------ -------
Total income ........ 1,604 2,253
------ -------
Expenses (Notes 2 and 3):
Distribution fee - Class B 142 304
Investment management fee 124 227
Service fee - Class B.. 48 101
Transfer agency and dividend
disbursing - Class B 46 62
Registration fees ..... 22 22
Accounting services fee 10 20
Custodian fees ........ 4 4
Audit fees ............ 6 11
Legal fees ............ --- 1
Amortization of prepaid
registration fees ... 11 ---
Shareholder servicing fee -
Class Y ............. --- ---
Distribution fee - Class Y --- ---
Other ................. 3 10
------ -------
Total expenses ...... 416 762
------ -------
Net investment income (loss) 1,188 1,491
------ -------
Realized and Unrealized Gain
(Loss) on Investments (Notes 1 and 4)
Realized net gain (loss)
on securities ......... (761) 872
Realized net loss from foreign
currency transactions . --- ---
Realized net gain on forward
currency contracts .... --- ---
------ ------
Realized net gain (loss)
on investments ...... (761) 872
------ ------
Unrealized appreciation (depreciation)
in value of securities during the
period ................ (524) (539)
Unrealized depreciation from
translation of assets and
liabilities in foreign currencies --- ---
------ ------
Unrealized appreciation
(depreciation) ...... (524) (539)
------ ------
Net gain (loss) on investments (1,285) 333
------ ------
Net increase (decrease) in net
assets resulting from
operations ....... $ (97) $1,824
====== ======
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 1,435 $ (3,141) $ (234)
Realized net gain (loss)
on investments ...... 58,725 68,630 148
Unrealized appreciation
(depreciation) ...... (24,832) 7,999 10,801
-------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 35,328 73,488 10,715
-------- -------- -------
Distributions to shareholders (Note 1E):*
From net investment income:
Class B ............. (383) --- ---
Class Y ............. (8) --- ---
From realized net gain on
investment transactions:
Class B ............. (59,613) (54,879) ---
Class Y ............. (148) (130) ---
-------- -------- -------
(60,152) (55,009) ---
-------- -------- -------
Capital share transactions
(Note 6) .............. 60,502 83,928 26,094
-------- -------- -------
Total increase ........ 35,678 102,407 36,809
Net Assets
Beginning of period .... 473,913 330,147 7,615
-------- -------- -------
End of period .......... $509,591 $432,554 $44,424
======== ======== =======
Undistributed net
investment income ..... $1,039 $--- $---
====== ==== ====
*See "Financial Highlights" on pages 80 - 95.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (474) $ 347 $ 836
Realized net gain (loss)
on investments ...... 10,347 (425) 2
Unrealized appreciation
(depreciation) ...... (381) 555 2
-------- -------- -------
Net increase (decrease) in
net assets resulting from
operations ......... 9,492 477 840
-------- -------- -------
Distributions to shareholders (Note 1E):*
From net investment income:
Class B ............. --- (358) (824)
Class Y ............. --- (7) (12)
From realized net gain on
investment transactions:
Class B ............. (5,284) (628) ---
Class Y ............. (31) (6) ---
-------- -------- -------
(5,315) (999) (836)
-------- -------- -------
Capital share transactions
(Note 6) .............. 8,756 11,662 3,238
-------- -------- -------
Total increase ........ 12,933 11,140 3,242
Net Assets
Beginning of period .... 87,460 19,640 18,332
-------- -------- -------
End of period .......... $100,393 $30,780 $21,574
======== ======== =======
Undistributed net
investment income ..... $--- $7 $---
==== ======== ====
*See "Financial Highlights" on pages 80 - 95.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Fiscal Year Ended MARCH 31, 1999
(Dollars In Thousands) High Municipal
Income Bond
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 1,188 $1,491
Realized net gain (loss)
on investments ...... (761) 872
Unrealized appreciation
(depreciation) ...... (524) (539)
------- -------
Net increase (decrease) in
net assets resulting from
operations ......... (97) 1,824
------- -------
Distributions to shareholders (Note 1E):*
From net investment income:
Class B ............. (1,188) (1,491)
Class Y ............. --- ---
From realized net gain on
investment transactions:
Class B ............. (57) (1,114)
Class Y ............. --- ---
------- -------
(1,245) (2,605)
------- -------
Capital share transactions
(Note 6) .............. 14,963 3,666
------- -------
Total increase ........ 13,621 2,885
Net Assets
Beginning of period .... 11,812 40,023
------- -------
End of period .......... $25,433 $42,908
======= =======
Undistributed net
investment income ..... $--- $---
==== ====
*See "Financial Highlights" on pages 80 - 95.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) Total Science and
Return Growth Technology
Fund Fund Fund
------------ ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (903) $ (2,823) $ (42)
Realized net gain (loss)
on investments ...... 22,549 24,170 (145)
Unrealized appreciation 108,013 106,888 1,239
-------- -------- ------
Net increase in net assets
resulting from operations 129,659 128,235 1,052
-------- -------- ------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- --- ---
Class Y ............. --- --- ---
From realized net gain on
investment transactions
Class B ............. (14,304) (12,537) ---
Class Y ............. (26) (22) ---
-------- -------- ------
(14,330) (12,559) ---
-------- -------- ------
Capital share transactions
(Note 6) .............. 40,627 16,119 6,563
-------- -------- ------
Total increase ........ 155,956 131,795 7,615
Net Assets
Beginning of period .... 317,957 198,352 ---
-------- -------- ------
End of period .......... $473,913 $330,147 $7,615
======== ======== ======
Undistributed net
investment income (loss) $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages 80 - 95.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ (556) $ 320 $ 825
Realized net gain (loss)
on investments ...... 5,845 1,492 (66)
Unrealized appreciation 16,677 1,660 500
------- ------- -------
Net increase in net assets
resulting from operations 21,966 3,472 1,259
------- ------- -------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. --- (318) (818)
Class Y ............. --- (5) (8)
From realized net gain on
investment transactions
Class B ............. (7,173) (681) ---
Class Y ............. (30) (8) ---
------- ------- -------
(7,203) (1,012) (826)
------- ------- -------
Capital share transactions
(Note 6) .............. 21,998 3,666 24
------- ------- -------
Total increase ........ 36,761 6,126 457
Net Assets
Beginning of period .... 50,699 13,514 17,875
------- ------- -------
End of period .......... $87,460 $19,640 $18,332
======= ======= =======
Undistributed net
investment income (loss) $--- $25 $---
==== ======= ====
*See "Financial Highlights" on pages 80 - 95.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Period Ended MARCH 31, 1998
(In Thousands) High Municipal
Income Bond
Fund Fund
------------ -----------
Increase in Net Assets
Operations:
Net investment income
(loss) .............. $ 225 $ 1,527
Realized net gain (loss)
on investments ...... 57 422
Unrealized appreciation 506 2,048
------- -------
Net increase in net assets
resulting from operations 788 3,997
------- -------
Distributions to shareholders (Note 1E):*
From net investment income
Class B ............. (225) (1,527)
Class Y ............. --- ---
From realized net gain on
investment transactions
Class B ............. --- ---
Class Y ............. --- ---
------- -------
(225) (1,527)
------- -------
Capital share transactions
(Note 6) .............. 11,249 934
------- -------
Total increase ........ 11,812 3,404
Net Assets
Beginning of period .... --- 36,619
------- -------
End of period .......... $11,812 $40,023
======= =======
Undistributed net
investment income ..... $--- $---
==== ====
*See "Financial Highlights" on pages 80 - 95.
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,
-----------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $12.24 $ 9.09 $8.17 $6.37 $6.00
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income
(loss)........... 0.03 (0.02) (0.01) (0.01) (0.00)
Net realized and
unrealized gain
on investments .. 0.82 3.56 .98 1.84 0.37
----- ----- ----- ----- -----
Total from investment
operations ....... 0.85 3.54 0.97 1.83 0.37
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.01) (0.00) (0.00) (0.00) (0.00)
From capital gains (1.56) (0.39) (0.05) (0.03) (0.00)
----- ----- ----- ----- -----
(1.57) (0.39) (0.05) (0.03) (0.00)
----- ----- ----- ----- -----
Net asset value,
end of period .... $11.52 $12.24 $9.09 $8.17 $6.37
====== ====== ===== ====== =====
Total return ....... 7.47% 39.57% 11.93% 28.75% 6.17%
Net assets, end of
period (000
omitted) ......... $508,210$472,970$317,453$208,233$104,691
Ratio of expenses
to average net
assets ........... 1.93% 1.92% 1.95% 1.99% 2.05%
Ratio of net investment income
(loss) to average
net assets ....... 0.30% -0.23% -0.17% -0.11% -0.04%
Portfolio turnover
rate ............. 54.73% 36.94% 26.23% 16.78% 16.60%
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
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
------------------------- 12/29/95**
1999 1998 1997 to 3/31/96
----------------------- --------------------
Net asset value,
beginning of
period ........... $12.46 $ 9.18 $8.19 $7.66
------ ------ ----- -----
Income from investment
operations:
Net investment
income........... 0.12 0.05 .02 0.02
Net realized and
unrealized gain
on investments .. 0.84 3.62 1.02 0.51
------ ------ ----- -----
Total from investment
operations ....... 0.96 3.67 1.04 0.53
------ ------ ----- -----
Less distributions:
From net investment
income .......... (0.08) (0.00) (0.00) (0.00)
From capital gains (1.56) (0.39) (0.05) (0.00)
------ ------ ----- -----
(1.64) (0.39) (0.05) (0.00)
------ ------ ----- -----
Net asset value,
end of period .... $11.78 $12.46 $9.18 $8.19
====== ====== ===== =====
Total return ....... 8.37% 40.63% 12.69% 6.92%
Net assets, end of
period (000
omitted) .......... $1,381 $943 $504 $87
Ratio of expenses
to average net
assets ........... 1.15% 1.20% 1.18% 0.96%***
Ratio of net investment
income to average
net assets ....... 1.10% 0.50% 0.65% 1.04%***
Portfolio turnover
rate ............. 54.73% 36.94% 26.23% 16.78%***
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**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,
-----------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $14.29 $ 9.08 $10.50 $ 8.45 $7.04
------ ------ ------ ------ -----
Income from investment
operations:
Net investment
income (loss) ... (0.11) (0.13) (0.03) (0.01) 0.00
Net realized and
unrealized gain (loss)
on investments .. 2.91 5.91 (1.09) 2.25 1.58
------ ------ ------ ------ -----
Total from investment
operations ....... 2.80 5.78 (1.12) 2.24 1.58
------ ------ ------ ------ -----
Less distribution
from capital gains (2.35) (0.57) (0.30) (0.19) (0.17)
------ ------ ------ ------ -----
Net asset value,
end of period .... $14.74 $14.29 $ 9.08 $10.50 $8.45
====== ====== ====== ====== ======
Total return ....... 21.61% 65.37% -10.97% 26.57% 22.61%
Net assets, end of period
(000 omitted) ... $424,612$329,514$198,088$202,557$100,683
Ratio of expenses
to average net
assets ........... 2.10% 2.13% 2.12% 2.14% 2.23%
Ratio of net investment
income (loss) to average
net assets ....... -0.90% -1.12% -0.27% -0.25% 0.01%
Portfolio turnover
rate .............. 51.41% 33.46% 37.20% 31.84% 56.30%
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
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
-------------------------- 12/29/95**
1999 1998 1997 to 3/31/96
----------------------- --------------------
Net asset value,
beginning of
period ........... $14.55 $ 9.16 $10.52 $10.11
------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... 0.00 (0.03) 0.01 0.02
Net realized and
unrealized gain (loss)
on investments .. 3.01 5.99 (1.07) 0.39
------ ------ ------ ------
Total from investment
operations ....... 3.01 5.96 (1.06) 0.41
------ ------ ------ ------
Less distribution
from capital gains (2.35) (0.57) (0.30) (0.00)
------ ------ ------ ------
Net asset value,
end of period .... $15.21 $14.55 $ 9.16 $10.52
====== ====== ====== ======
Total return ....... 22.73% 66.78%-10.37% 4.11%
Net assets, end of
period (000
omitted) .......... $7,942 $633 $264 $1
Ratio of expenses
to average net
assets ........... 1.18% 1.30% 1.17% 1.17%***
Ratio of net investment
income (loss) to average
net assets ....... 0.08% -0.30% 0.31% 0.78%***
Portfolio turnover
rate ............. 51.41% 33.46% 37.20% 31.84%***
*Per-share and share amounts have been adjusted retroactively to reflect the
100% stock dividend effected June 26, 1998.
**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 Each Period:
For the For the
fiscal period from
year 7/31/97*
ended to
3/31/99 3/31/98
------------ --------------
Net asset value,
beginning of period $12.01 $10.00
------ ------
Income from investment
operations:
Net investment
loss ............ (0.09) (0.07)
Net realized and
unrealized gain
on investments .. 5.53 2.08
------ ------
Total from investment
operations ....... 5.44 2.01
------ ------
Net asset value,
end of period .... $17.45 $12.01
====== ======
Total return ....... 45.30% 20.10%
Net assets, end of
period (000
omitted) ......... $44,371 $7,615
Ratio of expenses
to average net
assets ........... 2.57% 3.20%**
Ratio of net investment
loss to average net
assets ........... -1.26% -1.66%**
Portfolio
turnover rate .... 51.00% 26.64%
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout the Period:
For the
period from
6/9/98*
to
3/31/99
--------------
Net asset value,
beginning of period $12.20
------
Income from investment
operations:
Net investment
income .......... 0.01
Net realized and
unrealized gain
on investments .. 5.44
------
Total from investment
operations ....... 5.45
------
Net asset value,
end of period .... $17.65
======
Total return ....... 44.67%
Net assets, end of
period (000
omitted) ......... $53
Ratio of expenses
to average net
assets ........... 0.62%**
Ratio of net investment
income to average net
assets ........... 0.54%**
Portfolio
turnover rate .... 51.00%**
*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,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $15.04 $12.40 $9.94 $9.36 $9.37
------ ------ ------ ------ -----
Income from investment
operations:
Net investment
income (loss) ... (0.07) (0.10) (0.03) 0.08 0.36
Net realized and
unrealized gain (loss)
on investments .. 1.55 4.12 2.50 0.63 (0.01)
------ ------ ------ ------ -----
Total from investment
operations ....... 1.48 4.02 2.47 0.71 0.35
------ ------ ------ ------ -----
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.01) (0.11) (0.36)
From capital gains (0.94) (1.38) (0.00) (0.00) (0.00)
In excess of net
investment income (0.00) (0.00) (0.00) (0.02) (0.00)
------ ------ ------ ------ -----
Total distributions (0.94) (1.38) (0.01) (0.13) (0.36)
------ ------ ------ ------ -----
Net asset value,
end of period .... $15.58 $15.04 $12.40 $9.94 $9.36
====== ====== ====== ====== =====
Total return ....... 10.36% 35.24% 24.85% 7.64% 3.84%
Net assets, end of
period (000
omitted) ......... $99,764$87,041 $50,472$20,874 $11,188
Ratio of expenses
to average net
assets ........... 2.35% 2.35% 2.46% 2.50% 2.29%
Ratio of net investment
income (loss) to average
net assets ....... -0.53% -0.82% -0.52% 0.63% 3.87%
Portfolio turnover
rate ............. 116.25%105.11% 94.76% 88.55% 13.33%
*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 For the
year ended March 31, period from
-------------------------12/29/95*
1999 1998 1997to 3/31/96
-----------------------------------
Net asset value,
beginning of
period ........... $15.35 $12.52 $9.95 $9.70
------ ------ ------ ------
Income from investment
operations:
Net investment income 0.05 0.01 0.02 0.02
Net realized and
unrealized gain
on investments .. 1.62 4.20 2.56 0.23
------ ------ ------ ------
Total from investment
operations ....... 1.67 4.21 2.58 0.25
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.01) (0.00)
From capital gains (0.94) (1.38) (0.00) (0.00)
------ ------ ------ ------
Total distributions (0.94) (1.38) (0.01) (0.00)
------ ------ ------ ------
Net asset value,
end of period .... $16.08 $15.35 $12.52 $9.95
====== ====== ====== ======
Total return ....... 11.41% 36.45% 25.93% 2.58%
Net assets, end of
period (000
omitted) .......... $629 $419 $227 $7
Ratio of expenses
to average net
assets ........... 1.44% 1.51% 1.59% 1.84%**
Ratio of net investment
income to average
net assets ....... 0.36% 0.07% 0.05% 1.07%**
Portfolio turnover
rate ............. 116.25%105.11% 94.76% 88.55%**
*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
For the fiscal year from
year ended March 31, 4/20/95*
------------------------- to
1999 1998 19973/31/96
----------------------------------
Net asset value,
beginning of period $11.42 $9.73 $10.15 $10.00
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.15 0.21 0.23 0.16
Net realized and
unrealized gain (loss)
on investments .. 0.05 2.16 (0.30) 0.14
------ ------ ------ ------
Total from investment
operations ....... 0.20 2.37 (0.07) 0.30
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.16) (0.22) (0.21) (0.15)
From capital gains (0.26) (0.46) (0.14) (0.00)
------ ------ ------ ------
Total distributions (0.42) (0.68) (0.35) (0.15)
------ ------ ------ ------
Net asset value,
end of period .... $11.20 $11.42 $9.73 $10.15
====== ====== ====== ======
Total return ....... 1.79% 24.94% -0.86% 3.00%
Net assets, end of
period (000
omitted) ......... $30,473$19,415 $13,398$13,221
Ratio of expenses
to average net
assets ........... 2.32% 2.44% 2.52% 2.54%**
Ratio of net investment
income to average net
assets ........... 1.38% 2.02% 2.21% 2.14%**
Portfolio
turnover rate .... 168.17%220.67% 109.92% 75.02%
*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
For the fiscal period
year ended March 31, from
------------------------12/29/95*
1999 1998 1997to 3/31/96
-----------------------------------
Net asset value,
beginning of
period ........... $11.43 $9.73 $10.16 $10.23
----- ----- ------ ------
Income from investment
operations:
Net investment
income........... 0.26 0.31 0.27 0.07
Net realized and
unrealized gain (loss)
on investments .. 0.05 2.16 (0.26) (0.08)
----- ----- ------ ------
Total from investment
operations ....... 0.31 2.47 0.01 (0.01)
----- ----- ------ ------
Less distributions:
From net investment
income .......... (0.27) (0.31) (0.30) (0.06)
From capital gains (0.26) (0.46) (0.14) (0.00)
----- ----- ------ ------
Total distributions (0.53) (0.77) (0.44) (0.06)
----- ----- ------ ------
Net asset value,
end of period .... $11.21 $11.43 $9.73 $10.16
====== ====== ====== ======
Total return ....... 2.75% 26.06% 0.05% -0.25%
Net assets, end of
period (000
omitted) .......... $307 $225 $116 $1
Ratio of expenses
to average net
assets ........... 1.45% 1.58% 1.61% 1.95%**
Ratio of net investment
income to average
net assets ....... 2.25% 2.90% 2.97% 2.34%**
Portfolio turnover
rate ............. 168.17%220.67% 109.92% 75.02%***
*Commencement of operations.
**Annualized.
***Portfolio turnover is for the period from April 20, 1995 to March 31, 1996.
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,
-----------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $10.14 $9.90 $10.00 $ 9.70 $9.84
------ ------ ------ ------ -----
Income from investment
operations:
Net investment
income .......... 0.44 0.45 0.44 0.41 0.39
Net realized and
unrealized gain
(loss) on
investments ..... 0.02 0.24 (0.09) 0.30 (0.13)
------ ------ ------ ------ -----
Total from investment
operations ....... 0.46 0.69 0.35 0.71 0.26
------ ------ ------ ------ -----
Less distributions:
From net investment
income .......... (0.44) (0.45) (0.44) (0.41) (0.39)
From capital gains (0.00) (0.00) (0.01) (0.00) (0.01)
------ ------ ------ ------ -----
Total distributions (0.44) (0.45) (0.45) (0.41) (0.40)
------ ------ ------ ------ -----
Net asset value,
end of period .... $10.16 $10.14 $9.90 $10.00 $9.70
====== ====== ====== ====== =====
Total return ....... 4.65% 7.15% 3.52% 7.41% 2.73%
Net assets, end of
period (000
omitted) ......... $21,311$18,148 $17,770$23,682 $12,419
Ratio of expenses
to average net
assets ........... 2.11% 2.12% 2.07% 2.10% 2.17%
Ratio of net investment
income to average
net assets ........ 4.34% 4.52% 4.40% 4.14% 4.05%
Portfolio turnover
rate ............. 32.11% 27.37% 23.05% 22.08% 29.20%
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
For the fiscal period
year ended March 31, from
-------------------------12/29/95*
1999 1998 1997to 3/31/96
-----------------------------
Net asset value,
beginning of
period ........... $10.14 $9.90 $10.00 $10.16
------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.53 0.53 0.52 0.11
Net realized and
unrealized gain (loss)
on investments .. 0.02 0.24 (0.09) (0.16)
------ ------ ------ ------
Total from investment
operations ....... 0.55 0.77 0.43 (0.05)
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.53) (0.53) (0.52) (0.11)
From capital gains (0.00) (0.00) (0.01) (0.00)
------ ------ ------ ------
Total distributions (0.53) (0.53) (0.53) (0.11)
------ ------ ------ ------
Net asset value,
end of period .... $10.16 $10.14 $9.90 $10.00
====== ====== ====== ======
Total return ....... 5.60% 7.91% 4.33% -0.49%
Net assets, end of
period (000
omitted) ......... $263 $184 $105 $1
Ratio of expenses
to average net
assets ........... 1.20% 1.32% 1.04% 1.18%**
Ratio of net investment
income to average
net assets ....... 5.25% 5.32% 5.62% 4.70%**
Portfolio turnover
rate ............. 32.11% 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 Each Period:
For the For the
fiscal period from
year 7/31/97*
ended to
3/31/99 3/31/98
--------- ---------
Net asset value,
beginning of period $10.79 $10.00
------ ------
Income from investment
operations:
Net investment
income .......... 0.63 0.37
Net realized and
unrealized gain (loss)
on investments .. (0.82) 0.79
------ ------
Total from investment
operations ....... (0.19) 1.16
------ ------
Less distributions:
From net investment
income .......... (0.63) (0.37)
From capital gains (0.03) (0.00)
------ ------
Total distributions (0.66) (0.37)
------ ------
Net asset value,
end of period .... $9.94 $10.79
====== ======
Total return ....... -1.72% 11.77%
Net assets, end of
period (000
omitted) ......... $25,427 $11,812
Ratio of expenses
to average net
assets ........... 2.20% 2.52%**
Ratio of net investment
income to average net
assets ........... 6.29% 5.98%**
Portfolio
turnover rate .... 50.98% 67.82%
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
HIGH INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout The Period:
For the
period
from
12/30/98*
to
3/31/99
---------
Net asset value,
beginning of period $9.97
-----
Income from investment
operations:
Net investment
income .......... 0.20
Net realized and
unrealized gain
on investments... 0.00
-----
Total from investment
operations ........ 0.20
-----
Less distributions:
From net investment
income .......... (0.20)
From capital gains (0.03)
-----
Total distributions (0.23)
-----
Net asset value,
end of period ..... $9.94
=====
Total return ....... 2.45%
Net assets, end of
period (000
omitted) ......... $6
Ratio of expenses
to average net
assets ............ 0.26%**
Ratio of net investment
income to average net
assets ............ 8.55%**
Portfolio
turnover rate ..... 50.98%**
*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,
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $11.45 $10.74 $10.63 $10.30 $10.12
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.42 0.44 0.45 0.43 0.44
Net realized and
unrealized gain
on investments .. 0.10 0.71 0.11 0.33 0.18
------ ------ ------ ------ ------
Total from investment
operations ....... 0.52 1.15 0.56 0.76 0.62
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.42) (0.44) (0.45) (0.43) (0.44)
From capital gains (0.31) (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------
Total distributions (0.73) (0.44) (0.45) (0.43) (0.44)
------ ------ ------ ------ ------
Net asset value,
end of period .... $11.24 $11.45 $10.74 $10.63 $10.30
====== ====== ====== ====== ======
Total return ....... 4.64% 10.89% 5.32% 7.48% 6.37%
Net assets, end of
period (000
omitted) ......... $42,906$40,023 $36,618$33,869 $27,434
Ratio of expenses
to average net
assets ........... 1.88% 1.89% 1.92% 1.93% 1.94%
Ratio of net investment
income to average
net assets ....... 3.68% 3.94% 4.18% 4.05% 4.41%
Portfolio turnover
rate ............. 41.53% 27.86% 34.72% 42.02% 56.92%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
MUNICIPAL BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For
the For For the
period the fiscal For the
from period year period from
12/30/98***ended ended 12/29/95*
to 3/31/996/23/97**3/31/97 to 3/31/96
-------------------------- ------------
Net asset value,
beginning of
period ........... $11.58 $10.74 $10.63 $10.94
------ ------ ------ ------
Income from investment
operations:
Net investment
income........... 0.13 0.10 0.52 0.12
Net realized and
unrealized gain
(loss) on
investments ..... (0.03) 0.29 0.11 (0.31)
------ ------ ------ ------
Total from investment
operations ....... 0.10 0.39 0.63 (0.19)
------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.13) (0.10) (0.52) (0.12)
From capital gains (0.31) (0.00) (0.00) (0.00)
------ ------ ------ ------
Total distributions (0.44) (0.10) (0.52) (0.12)
------ ------ ------ ------
Net asset value,
end of period .... $11.24 $11.03 $10.74 $10.63
====== ====== ====== ======
Total return ....... 0.80% 3.22% 5.96% -1.80%
Net assets, end of
period (000
omitted) .......... $2 $0 $1 $1
Ratio of expenses
to average net
assets ........... 1.00%****4.95%**** 1.28% 1.18%****
Ratio of net investment
income to average
net assets ....... 4.40%****4.12%**** 4.83% 4.33%****
Portfolio turnover
rate ............. 41.53%****27.86%****34.72% 42.02%****
*Initial commencement of operations.
**All outstanding shares were redeemed on June 23, 1997 at the ending net
asset value shown in the table.
***Recommencement of operations.
****Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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 business day following 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 carryovers. At March 31, 1999 the following amounts were
reclassified:
Increase(Decrease) Increase(Decrease) Increase
Accumulated Accumulated (Decrease)
Undistributed Undistributed Additional
Net Investment Net Realized Paid-In
Fund Income Capital Gains Capital
- ---- ------------------- ------------------- -------------
Total Return Fund $ (4,828) $ 4,828 $ ---
Growth Fund 3,140,720 (3,140,720) ---
Science and Technology
Fund 233,968 (76,119) (157,849)
International Growth
Fund 536,337 (536,337) ---
Net investment income, net realized gains and net assets were not affected
by these changes.
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.
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).
Science and Technology Fund and High Income Fund were established in
Maryland and were inactive (except for matters relating to their organization
and registration as investment companies 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 were amortized evenly over the 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, 1999, the Distributor received $7,789,744 in
distribution fees and $2,618,469 in service fees. During this same period W&R
paid sales commissions of $6,032,441.
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, 1999, the Distributor received $9,354 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, 1999, the Distributor received $1,412,335 in deferred sales
charges.
The Corporation paid Directors' fees of $36,176, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 4 -- Investment Securities Transactions
Investment securities transactions for the period ended March 31, 1999 are
summarized as follows:
Total Science and
Return Growth Technology
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$ 162,814,920$ 145,066,301 $24,358,087
Purchases of U.S. Government
securities ............... 84,892,960 --- ---
Purchases of short-term
securities ...............1,617,847,941 1,247,469,584 86,534,261
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 208,866,504 162,394,916 7,505,853
Proceeds from maturities
and sales of U.S.
Government securities .... --- --- ---
Proceeds from maturities
and sales of short-term
securities ...............1,668,722,392 1,208,472,542 78,398,000
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ---------- -----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ...............$ 98,952,738 $32,355,157 $ 4,985,070
Purchases of U.S. Government
securities ............... 3,285,586 17,268,848 4,155,629
Purchases of short-term
securities ............... 113,703,512 52,118,214 16,980,445
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 96,977,355 29,220,024 2,572,046
Proceeds from maturities
and sales of U.S.
Government securities .... 3,324,922 7,290,423 3,265,468
Proceeds from maturities
and sales of short-term
securities ............... 113,628,717 54,979,026 17,163,084
High Municipal
Income Bond
Fund Fund
----------- ----------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities ............... $21,363,330 $16,849,389
Purchases of U.S. Government
securities ............... 529,062 ---
Purchases of short-term
securities ............... 40,337,261 22,152,817
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities .... 7,943,464 16,510,485
Proceeds from maturities
and sales of U.S.
Government securities .... 540,000 ---
Proceeds from maturities
and sales of short-term
securities ............... 39,688,832 21,405,405
For Federal income tax purposes, cost of investments owned at March 31,
1999 and the related unrealized appreciation (depreciation) were as follows:
Aggregate
Appreciation
Cost AppreciationDepreciation(Depreciation)
----------- -------------------------------------
Total Return Fund $356,592,155 $166,435,842 $14,967,245 $151,468,597
Growth Fund 313,708,533 137,150,175 19,820,460 117,329,715
Science and Technology
Fund 31,502,687 13,071,931 1,031,863 12,040,068
International Growth
Fund 79,632,066 26,412,071 5,059,535 21,352,536
Asset Strategy Fund 28,766,415 2,071,963 358,364 1,713,599
Limited-Term Bond Fund21,019,048 239,527 54,921 184,606
High Income Fund 25,013,270 921,954 939,891 (17,937)
Municipal Bond Fund 40,496,400 2,001,378 65,353 1,936,025
NOTE 5 -- Federal Income Tax Matters
For Federal income tax purposes, Total Return Fund, Growth Fund,
International Growth Fund and Municipal Bond Fund realized capital gain net
income of $58,723,106, $65,489,279, $9,582,657 and $807,798, respectively,
during the year ended March 31, 1999. For Federal income tax purposes, Asset
Strategy Fund realized capital gain net income of $52,457, which included the
effect of certain losses deferred into the next fiscal year (see discussion
below). For Federal income tax purposes, Science and Technology Fund realized
capital gain net income of $33,918 during the year ended March 31, 1999, which
included the effect of certain losses deferred into the next fiscal year, as
well as the effect of losses recognized from the prior year (see discussion
below). This capital gain net income was offset by utilization of $24 capital
loss carryover from year ended March 31, 1998. For Federal income tax purposes,
Limited-Term Bond Fund realized no net capital gains or losses for the year
ended March 31, 1999, because of the utilization of capital loss carryovers and
the effect of certain losses deferred into the next fiscal year as well as the
effect of losses recognized from prior year (see discussion below). Remaining
capital loss carryover aggregated $149,836 at March 31, 1999, are available to
offset future realized capital gain net income for Federal income tax purposes
but will expire if not utilized as follows: $85,336 at March 31, 2005; and
$64,500 at March 31, 2006. For Federal income tax purposes, High Income Fund
realized capital losses of $501,692 during the year ended March 31, 1999, which
included the effect of certain losses deferred into the next fiscal year (see
discussion below). These losses are available to offset future realized capital
gain net income for Federal income tax purposes through March 31, 2007. A
portion of the capital gain net income of Total Return Fund, Growth Fund,
International Growth Fund, Municipal Bond Fund, Asset Strategy Fund, and High
Income Fund was paid to shareholders during the year ended March 31, 1999.
Remaining capital gain net income for Total Return Fund, Growth Fund,
International Growth Fund, Municipal Bond Fund, and Science and Technology 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, 1998 through March 31, 1999, Asset Strategy Fund, Science and
Technology Fund, Limited-Term Bond Fund, and High Income Fund incurred net
capital losses of $477,952, $108,105, $3,090, and $259,064, respectively, which
have been deferred to the fiscal year ending March 31, 2000. In addition,
during the year ended March 31, 1999, Science and Technology Fund and Limited-
Term Bond Fund recognized post-October losses of $145,588 and $1,717,
respectively, that had been deferred from year ended March 31, 1998.
NOTE 6 -- Multiclass Operations
Each Fund within the Corporation is authorized to offer 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, 1999 are
summarized below. Dollar amounts are in thousands.
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 10,022,490 6,727,339 2,150,217
Class Y ............ 32,620 471,624 2,993
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............. 5,395,830 4,145,013 ---
Class Y ............ 13,872 9,589 ---
Shares redeemed:
Class B ............ (9,956,039) (5,132,051) (240,714)
Class Y ............ (4,907) (2,501) ---
--------- --------- ---------
Increase in outstanding
capital shares:
Class B ............ 5,462,281 5,740,301 1,909,503
Class Y ............ 41,585 478,712 2,993
--------- --------- ---------
Total for Fund .... 5,503,866 6,219,013 1,912,496
========= ========= =========
Value issued from sale
of shares:
Class B ............ $119,057 $95,835 $29,323
Class Y ............ 401 6,879 47
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 59,624 54,503 ---
Class Y ............ 156 130 ---
Value redeemed:
Class B ............ (118,675) (73,381) (3,276)
Class Y ............ (61) (38) ---
-------- ------- -------
Increase in outstanding
capital:
Class B ............ 60,006 76,957 26,047
Class Y ............ 496 6,971 47
-------- ------- -------
Total for Fund .. $ 60,502 $83,928 $26,094
======== ======= =======
* Share transactions prior to June 27, 1998 have been adjusted to effect
the 100% stock dividend of June 26, 1998.
International Asset Limited-
Growth Strategy Term Bond
Fund Fund Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 2,459,922 1,487,385 1,154,374
Class Y ............ 11,890 8,363 8,190
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 366,149 88,597 79,341
Class Y ............ 2,124 1,139 1,036
Shares redeemed:
Class B ............ (2,210,705) (554,869) (925,409)
Class Y ............ (2,188) (1,755) (1,468)
--------- --------- -------
Increase in outstanding
capital shares:
Class B ............ 615,366 1,021,113 308,306
Class Y ............ 11,826 7,747 7,758
--------- --------- -------
Total for Fund .... 627,192 1,028,860 316,064
========= ========= =======
Value issued from sale
of shares:
Class B ............ $38,406 $16,872 $11,778
Class Y ............ 192 95 83
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 5,261 981 808
Class Y ............ 31 13 11
Value redeemed:
Class B ............ (35,100) (6,279) (9,427)
Class Y ............ (34) (20) (15)
------- ------- -------
Increase in outstanding
capital:
Class B ............ 8,567 11,574 3,159
Class Y ............ 189 88 79
------- ------- -------
Total for Fund .. $ 8,756 $11,662 $ 3,238
======= ======= =======
High Municipal
Income Bond
Fund Fund
----------- -----------
Shares issued from sale
of shares:
Class B ............ 1,990,704 1,111,959
Class Y ............ 630 172
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 121,122 212,992
Class Y ............ 10 7
Shares redeemed:
Class B ............ (649,483) (1,003,930)
Class Y ............ --- ---
--------- ---------
Increase in outstanding
capital shares:
Class B ............ 1,462,343 321,021
Class Y ............ 640 179
--------- ---------
Total for Fund .... 1,462,983 321,200
========= =========
Value issued from sale
of shares:
Class B ............ $20,234 $12,733
Class Y ............ 6 2
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,217 2,420
Class Y ............ --- ---
Value redeemed:
Class B ............ (6,494) (11,489)
Class Y ............ --- ---
------- -------
Increase in outstanding
capital:
Class B ............ 14,957 3,664
Class Y ............ 6 2
------- -------
Total for Fund .. $14,963 $ 3,666
======= =======
Transactions in capital stock for the periods ended March 31, 1998 are
summarized below. Dollar amounts are in thousands.
Total Science and
Return Growth Technology
Fund* Fund* Fund
----------- ------------ ------------
Shares issued from sale
of shares:
Class B ............ 8,798,324 4,436,662 688,314
Class Y ............ 20,534 14,002 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 1,341,224 1,109,352 ---
Class Y ............ 2,410 1,880 ---
Shares redeemed:
Class B ............ (6,423,782) (4,297,390) (54,306)
Class Y ............ (2,200) (1,180) ---
--------- --------- -------
Increase (decrease) in outstanding
capital shares:
Class B ............ 3,715,766 1,248,624 634,008
Class Y ............ 20,744 14,702 ---
--------- --------- -------
Total for Fund .... 3,736,510 1,263,326 634,008
========= ========= =======
Value issued from sale
of shares:
Class B ............ $95,637 $50,812 $7,140
Class Y ............ 226 159 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 14,277 12,519 ---
Class Y ............ 26 21 ---
Value redeemed:
Class B ............ (69,514) (47,378) (577)
Class Y ............ (25) (14) ---
------- ------- ------
Increase (decrease) in outstanding
capital:
Class B ............ 40,400 15,953 6,563
Class Y ............ 227 166 ---
------- ------- ------
Total for Fund .. $40,627 $16,119 $6,563
======= ======= ======
* Share amounts have been adjusted retroactively to reflect the 100% stock
dividend effected June 26, 1998.
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 ............ $27,026 $6,622 $5,744
Class Y ............ 99 75 73
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 7,166 996 795
Class Y ............ 30 13 8
Value redeemed:
Class B ............ (12,313) (4,034) (6,591)
Class Y ............ (10) (6) (5)
------- ------ -------
Increase (decrease) in outstanding
capital:
Class B ............ 21,879 3,584 (52)
Class Y ............ 119 82 76
------- ------ ------
Total for Fund .. $21,998 $3,666 $ 24
======= ====== ======
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 $8,274
Class Y ............ --- ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class B ............ 215 1,377
Class Y ............ --- ---
Value redeemed:
Class B ............ (846) (8,716)
Class Y ............ --- (1)
------- ------
Increase (decrease) in outstanding
capital:
Class B ............ 11,249 935
Class Y ............ --- (1)
------- ------
Total for Fund .. $11,249 $ 934
======= ======
Note 7 -- Stock Dividend
The Corporation's Board of Directors approved on February 11, 1998 a stock
dividend of 100% on both Waddell and Reed Total Return Fund and Waddell and Reed
Growth Fund effected on June 26, 1998. All share and per share amounts have
been adjusted retroactively to reflect the stock dividend.
Note 8 -- Securities Loaned
On March 31, 1999, securities with a market value of $44,980,410 (which are
included in the accompanying schedule of investments) had been loaned under
agreements whereby the Total Return Fund received securities with a market value
of $46,016,963 as collateral. The aggregate amount of such loans must be
continuously secured by 100% of the market value of the securities loaned. The
Fund derives income from its securities lending activities. These agreements
may be terminated by the borrower or the Fund upon proper notice. In the event
the borrower fails to deliver the securities within five business days, the Fund
has the right to use the collateral to purchase similar or other securities.
During the period ended March 31, 1999, the Fund derived approximately $39,704
of income, net of related expenses, from its securities lending activities.
<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, 1999, and the related statements of operations for
the fiscal year then ended, the statements of 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 fiscal periods in the five-year
period then ended. These financial statements and the financial
highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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 as of March 31, 1999, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
positions of each of the respective Funds comprising Waddell & Reed
Funds, Inc. as of March 31, 1999, the results of their operations for the
fiscal year then ended, the changes in their net assets for each of the
fiscal periods in the two-year period then ended, and the financial
highlights for the respective stated periods, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 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 Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapitalGain
------------------- -------- ---------------------------------------
Total Return Fund
Class B
12-16-98 $1.5680 $0.0100 $1.5580 $0.0100 $--- $1.5580
------- ------- ------- ------- ------- -------
Total $1.5680 $0.0100 $1.5580 $0.0100 $--- $1.5580
======= ======= ======= ======= ======= =======
Class Y
12-16-98 $1.6420 $0.0840 $1.5580 $0.0840 $--- $1.5580
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total $1.6420 $0.0840 $1.5580 $0.0840 $--- $1.5580
======= ======= ======= ======= ======= =======
Growth Fund
Class B and Class Y
12-16-98 $2.3480 $0.2100 $2.1380 $--- $0.2100 $2.1380
------- ------- ------- ------- ------- -------
Total $2.3480 $0.2100 $2.1380 $--- $0.2100 $2.1380
======= ======= ======= ======= ======= =======
International Growth Fund
Class B and Class Y
12-16-98 $0.9386 $0.8200 $0.1186 $--- $0.8200 $0.1186
------- ------- ------- ------- ------- -------
Total $0.9386 $0.8200 $0.1186 $--- $0.8200 $0.1186
======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class B
6-12-98 $0.0300 $0.0300 $ --- $0.0066 $0.0234 $ ---
9-11-98 .0500 .0500 --- .0113 .0387 ---
12-16-98 .3170 .2960 .0210 .0135 .2825 .0210
3-10-99 .0200 .0200 --- .0067 .0133 ---
------- ------- ------- ------- ------- -------
Total $0.4170 $0.3960 $0.0210 $0.0381 $0.3579 $0.0210
======= ======= ======= ======= ======= =======
Asset Strategy Fund
Class Y
6-12-98 $0.0540 $0.0540 $ --- $0.0119 $0.0421 $ ---
9-11-98 .0740 .0740 --- .0167 .0573 ---
12-16-98 .3440 .3230 .0210 .0196 .3034 .0210
3-10-99 .0510 .0510 --- .0172 .0338 ---
------- ------- ------- ------- ------- -------
Total $0.5230 $0.5020 $0.0210 $0.0654 $0.4366 $0.0210
======= ======= ======= ======= ======= =======
<PAGE>
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 Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital
Gain
- ------------------------- -------- ---------------------------------------
Limited-Term Bond Fund
Class B and Class Y
April 1998 through
March 19996 100.00% 100.00% ---% ---% 100.00% ---%
High Income Fund
Class B and Class Y
April 1998 through
March 1999 100.00% 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
1998 100.00% 97.3585% 2.6415%---% ---%
December 1998100.00% ---% .1308%---% 99.8692%
January through
March
1998 100.00% 98.0924% 1.9076%---% ---%
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Income from Municipal Bond Fund may be subject to the alternative minimum tax.
Shareholders are advised to consult with their tax advisor concerning the tax
treatment of dividends and distributions from all Funds.
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Michael L. Avery, Vice President
Abel Garcia, Vice President
Henry J. Herrmann, Vice President
John M. Holliday, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Thomas A. Mengel, Vice President
Louise D. Rieke, Vice President
Grant P. Sarris, 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.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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
- ------------------------------------
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(3-99)
printed on recycled paper
